Do FinTech Innovations Amplify the Transmission of Stock Market Shocks to the Real Economy? A Cross-Country Panel Investigation

Abstract

This paper examines whether financial technology (FinTech) moderates or amplifies the transmission of stock-market volatility to real economic activity, conditional on institutional quality. Using quarterly data for 38 economies over the period 2010–2023, a FinTech Penetration Index is constructed from digital transaction volumes, user adoption, and FinTech firm density. Panel vector autoregression (PVAR), panel autoregressive distributed lag (ARDL)bounds testing, and pooled mean group (PMG) estimation are employed to capture short-and long-run dynamics. The results indicate that FinTech-related shocks reduce stock-market volatility and stimulate GDP and investment growth, with significantly stronger effects in countries characterized by higher governance quality. Long-run elasticities suggest that a 10-point increase in FinTech penetration raises quarterly GDP growth by 0.42 percentage points, whereas increased market volatility reduces growth by 0.11 percentage points. Overall, the findings support the view that FinTech acts as a macroeconomic stabilizer when supported by strong institutional frameworks, highlighting the importance of promoting digital finance alongside governance reforms