The role of institutional quality effectiveness in the relationship between financial development and economic complexity: Empirical evidence from MENA countries

Articles in Press

Document Type : Research Paper

Authors

1 Yazd University

2 Assistant Professor of Economics at Payam Noor University

3 payamenoor

Abstract

Understanding the determinants of economic complexity is particularly crucial for countries in the Middle East and North Africa (MENA) region, which face considerable challenges in adapting to the rapid transformations of the global economy. Although many researchers consider financial development as a key factor influencing economic complexity, it may not be sufficient on its own without a dynamic institutional framework. Accordingly, this study aims to examine the impact of financial development on economic complexity, considering the role of institutional quality, using the Fully Modified Ordinary Least Squares (FMOLS) method for a panel of selected MENA countries over the period 2005–2021. The results reveal that per capita GDP and institutional quality have a positive and statistically significant effect on economic complexity. In contrast, the direct effect of financial development is negative and negligible. However, the interaction term between financial development and institutional quality is positive and significant, indicating that financial development can enhance economic complexity only within an efficient institutional environment. The findings also show that research and development (R&D) expenditure has a positive and significant impact on economic complexity.

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Quarterly Journal of Applied Theories of Economics

Articles in Press, Accepted Manuscript
Available Online from 07 September 2025

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