1 ∗log(G G 2 ∗log�G G �2 (2) cc,tt cc,tt tt cc,tt YY = CC+ ββ cc) + ββ cc + νν + εε If both 1 and 2 are significant, it can be interpreted as the function being quadratic. If only 2 is significant but not 1 , one can choose the log-linear over the quadratic form only if the ββ ββ ββ goodness of fit is superior. Therefore, we also report the adjusted statistic and choose the ββ functional form that yields the highest goodness of fit. RR<sup>2</sup>

# **4. Data**

The empirics rely on pooled cross-sectional data from the Global Findex database to explore payment technology adoption across the globe with a special focus on economies from the Middle East and North Africa (MENA). The focus on the latter is justified on statically grounds, because, as will become apparent in subsequent sections of this paper, most countries in this region appear to be systematically below the predictions of the three models. That is, many MENA countries have populations that are under-served in terms of payments mechanisms conditional on their levels of development.

Due to lack of data on the use of the most recently developed forms of payments, the analyses rely on proxy variables only for the first three stages of payments-system development listed in Table 1. The proxy for stage 1 is the share of the population having an account at a bank or another type of financial institution.<sup>5</sup> Stage 2 is measured by the percentage of the population who reported making a digital payment in the past 12 months.<sup>6</sup> Stage 3 is the percentage of respondents who reported using a mobile money service in the past 12 months.<sup>7</sup> The right-hand side variable in the estimation equations is the (natural logarithm of) GDP per capita in current

> 5 The Findex database defines this variable as follows: Accounts per adult (% age 15+) “denotes the percentage of respondents who report having an account (by themselves or together with someone else) at a bank or another type of financial institution.” See

> <u>https://globalfindex.worldbank.org/sites/globalfindex/files/databank/Glossary2017.pdf.</u>

> 6 The Findex definition is the percentage of adults who made digital payments in the past year (% age 15+). It “denotes the percentage of respondents who report using mobile money, a debit or credit card, or a mobile phone to make a payment from an account, or report using the internet to pay bills or to buy something online, in the past 12 months. It also includes respondents who report paying bills or sending remittances directly from a financial institution account or through a mobile money account in the past 12 months.” See <u>https://globalfindex.worldbank.org/sites/globalfindex/files/databank/Glossary2017.pdf.</u>

> 7 Findex defines this variable as the percentage of adults (% age 15+) who report using a mobile money account, which “includes respondents who report personally using services included in the GSM Association’s Mobile Money for the Unbanked (GSMA MMU) database to pay bills or to send or receive money in the past 12 months. It also includes an additional 0.60 percent of respondents in 2017 who report receiving wages, government transfers, a public sector pension (included in 2017 data), or payments for agricultural products through a mobile phone in the past 12 months.” See footnote 2 in <u>https://globalfindex.worldbank.org/sites/globalfindex/files/databank/Glossary2017.pdf.</u>

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