Analysis of Technological Innovation on Financial Sector Performance in South Africa

This study examines how technological innovation has shaped economic growth and financial sector performance in South Africa between 1999 and 2023. While many studies treat innovation and finance as separate areas, this research brings them together in a country-specific context. Financial sector performance is measured through domestic credit to the private sector (DCPS), with exchange rate (EXR), broad money supply (M3), inflation (INF), gross fixed capital formation (GFCF), and information and communication technology (ICT) service exports as the main explanatory variables. Time series techniques. including unit root and cointegration tests, the Vector Error Correction Model (VECM), variance decomposition, and Generalised Impulse Response Functions (GIRF) are applied to capture both short- and long-run relationships. In the short run, exchange-rate depreciation, rising inflation, and ICT service exports reduce DCPS, while M3 and GFCF show no significant impact. In the long run, however, ICT service exports emerge as a positive driver, highlighting the role of digital innovation in deepening credit markets. The error-correction results show a slow but steady adjustment toward equilibrium, pointing to structural challenges within the financial system. The study used quarterly data sourced from different databases with differing measurement frequencies, the data was therefore turned into logs during analysis stage to make it more unified for ease of analysis and application. Overall, the findings indicate that technological innovation is an important but uneven driver of South Africa’s growth. Policy efforts should link innovation to credit access, design public investment to support rather than crowd out private borrowing and better align digital and financial sector strategies.