Article

Dynamic Connectedness and Time-Varying Causality between Digital Payment Adoption and GDP Growth in the FinTech Era

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Abstract

This study investigates the dynamic interaction, systemic connectedness, and time-varying causality between digital payment adoption and GDP growth in the FinTech era. Employing a Time-Varying Parameter Vector Autoregression (TVP-VAR) framework, the analysis captures evolving relationships that cannot be identified using static or linear econometric models. Quarterly data on digital payment adoption and real GDP growth are analyzed to examine how macroeconomic effects change across different stages of digital financial development. The empirical results reveal that the relationship between digital payment adoption and GDP growth is non-linear and regime-dependent. Time-varying estimates indicate that the growth impact of digital payments intensifies significantly during periods of accelerated adoption and ecosystem maturation. Dynamic connectedness analysis shows that the Total Connectedness Index increases from approximately 38% in early adoption phases to over 64% in mature FinTech phases, indicating a substantial rise in systemic interdependence between digital finance and the real economy. Directional spillover results further demonstrate that digital payment adoption acts predominantly as a net transmitter of macroeconomic shocks, contributing on average 41.8% of spillovers to GDP growth, while receiving only 26.4% in return. Time-varying Granger causality analysis confirms that causality from digital payments to GDP growth dominates both in duration and statistical strength, with causality regimes lasting on average 3.2 years and exhibiting posterior probabilities exceeding 0.80. In contrast, reverse causality from GDP growth to digital payments appears weaker, shorter, and episodic. Overall, the findings establish digital payment systems as active macroeconomic infrastructure rather than passive financial tools. By revealing how FinTech-driven growth effects evolve over time, this study contributes to the literature on digital finance and economic growth and provides evidence-based insights for adaptive FinTech policy and sustainable digital economic development.

Keywords: Financial Technology, Digital Payments, GDP Growth, Time-Varying Parameter VAR, Dynamic Connectedness, Granger Causality, Digital Economy

How to Cite:

Supriyanto, H. & Pratama, S. F., (2025) “Dynamic Connectedness and Time-Varying Causality between Digital Payment Adoption and GDP Growth in the FinTech Era”, FinTech Innovation Journal 1(2), 118-136. doi: https://doi.org/10.63913/ftij.v1i2.81