Technology Adoption and Leapfrogging: Racing for Mobile Payments (Revised February 2025)

Paying with a mobile phone is a cutting-edge innovation that is transforming the global payments landscape. Some developing countries have surprisingly overtaken advanced economies in adopting the mobile payment innovation. We construct a dynamic model with sequential payment innovations to explain this phenomenon. Our estimated model matches cross-country patterns of payment technology adoption well and uncovers how advanced economies' past success in adopting card-payment technology holds them back in the mobile-payment race. Our analysis also shows that in the presence of payment externalities, subsidizing mobile payment adoption may enhance social welfare and can be more beneficial for developing countries.