Financing the economy: The multidimensional influences of financial development on economic complexity

Abstract

This study examines how financial development influences economic complexity, using a broad index of financial development. By utilising a global sample of 86 countries over the period 2002–2017 and applying several econometric techniques, we find that financial institutions and financial markets, as well as their sub-indices (financial depth, financial access and financial efficiency), have significantly positive impacts on economic complexity. Interestingly, financial institutions have a stronger effect than financial markets, and it is the same with financial efficiency over financial access and financial depth. Three subsamples comprising 28 low- and lower-middle-income countries, 22 upper-middle-income countries and 36 high-income countries are examined.