Does Financial Development Matter for Economic Complexity? –Cross-Country Evidence

Soo-Wah Low; Ali Albada; Noor Azlan Ghazali

Economic complexity represents another way to envision a country’s development where productive knowledge is the key to prosperity. This paper examines the role of financial development in promoting economic complexity. Recognizing that financial development promotes economic complexity through various functions, this paper breaks down financial development into its sub-sectors - financial institutions and financial markets, and further into three dimensions (depth, access and efficiency). The findings show that while financial sector development enhances economic complexity, the impacts of financial institutions and financial markets may differ. The full sample results indicate that more financially developed countries have more complex economy structure. Specifically, the depth of financial institution and the efficiency of financial market are crucial in fostering economic complexity. In high-income countries, financial market plays marginal role in promoting economic complexity. Financial institutions depth and efficiency are important in enhancing the complexity of a country’s productive structure. In low-income countries, evidence shows that both financial institutions and financial markets spur economic complexity. The depth of financial institutions and financial markets as well as the efficiency of the financial market have significant effects on economic complexity. The findings highlight the importance of examining beyond the overall financial development. By breaking down financial development into its sub-sectors and various dimensions, this study offers insights into specific areas of financial development that promote economic complexity to facilitate effective policy interventions.

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Low, S.-W., Albada, A., & Ghazali, N. A. (2024). Does Financial Development Matter for Economic Complexity? –Cross-Country Evidence. International Journal of Academic Research in Accounting, Finance and Management Sciences, 14(4), 496–513.

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Does Financial Development Matter for Economic Complexity? –Cross-Country Evidence

Soo-Wah Low, Ali Albada, Noor Azlan Ghazali

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