Does Corruption Hinder the Effect of Financial Development on Economic complexity? Evidence from MENA Countries
摘要
Economic complexity has been widely studied in recent decades and the literature highlighted the controversial effects of financial development on it. However, little is known about the role of corruption. The objective of this article is to assess the effect of corruption in the relationship between financial development and economic complexity in Middle East and North Africa from 1995 to 2020. For this purpose, we use the economic complexity index as an indicator of economic complexity, and four dimensions to capture financial development, namely financial accessibility, efficiency, depth and stability. Based on the Instrumental Variables Two-Stage Least Squares (IV-2SLS) technique, we obtain the following results: 1. Financial development is a powerful tool of economic complexity in Middle Eastern and North African countries. 2. Corruption has heterogeneous effects on the financial development and economic complexity nexus. Specifically, corruption hinders financial access, depth and efficiency to reinforce economic complexity over the period. In contrast, it improves the effect of financial stability on economic complexity in the region. 3. Our results remain robust following several sensitivity and robustness tests related to historical, cultural, and geographic factors, another measure of economic complexity, and change in estimation technique. This result calls on policymakers to tighten controls on corruption to allow financial development to significantly enhance economic complexity.