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Impacts of financial openness on economic complexity: Cross‐country evidence

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Listed:
  • Yuyuan Yu
  • Muhammad Qayyum

Abstract

Few studies are found to examine the relationship between financial openness and economic complexity. Using a panel data of 120 economies during 1996–2016, this paper aims to examine the impact of financial openness, human capital, institutional quality, banking industry concentration, and other factors on economic complexity. We establish dynamic panel models that incorporate lagged‐dependent variables and employ the Generalized Method of Moments (GMM) for estimation. Our pooled‐sample regression results show that the enhancement of overall financial openness could increase the economic complexity significantly, as well as de‐facto and de‐jure openness. The subsample regressions indicate heterogeneous impacts of financial openness depending on country groups and industry. Besides, there exists significant path dependence for ECI improvement, which is more prominent in high‐income countries. For low‐ and middle‐income countries, greater GVC participation and lower banking concentration can promote ECI improvement significantly.

Suggested Citation

  • Yuyuan Yu & Muhammad Qayyum, 2023. "Impacts of financial openness on economic complexity: Cross‐country evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1514-1526, April.
    • Handle: RePEc:wly:ijfiec:v:28:y:2023:i:2:p:1514-1526
    DOI: 10.1002/ijfe.2491

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    5. C.O. Olaniyi & N.M. Odhiambo, 2024. "Does Institutional Quality Matter In The Financial Development-Economic Complexity Nexus? Empirical Insights From Africa," Working Papers WP042024, African Economic and Social Research Institute (AESRI).
    6. Bistuer, David & Chuliá, Helena & Uribe, Jorge M., 2026. "Economic complexity and the resilience-sustainability strategy for climate change," Structural Change and Economic Dynamics, Elsevier, vol. 77(C), pages 395-411.
    7. Hemachandra Padhan & Sosson Tadadjeu & Henri Njangang & Brice Kamguia, 2025. "Energy poverty and economic complexity: effect and transmission channels," Economic Change and Restructuring, Springer, vol. 58(6), pages 1-31, December.
    8. Valentine Soumtang Bime & Dieudonné Mignamissi & Agathe Cassandra Koumis Ngagni, 2024. "Does financial openness matter for economic transformation in sub-Saharan Africa?," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-49, April.
    9. Zhang, Lulu & Chen, Weiming & Zhang, Qian & You, Kairui & Diao, Gang, 2025. "Improving economic complexity index: Insights from value added," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 1391-1408.
    10. Olaniyi, Clement Olalekan & Odhiambo, Nicholas Mbaya, 2025. "Finding explanations for weak economic complexity in resource-rich African countries: Exploring the role of natural resource endowment and institutional quality," Resources Policy, Elsevier, vol. 101(C).
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