IDEAS home Printed from https://ideas.repec.org/p/agd/wpaper/21-018.html
   My bibliography  Save this paper

Is financial development shaping or shaking economic sophistication in African countries?

Author

Listed:
  • Henri Njangang

    (University of Dschang , Cameroon)

  • Simplice A. Asongu

    (Yaoundé, Cameroon)

  • Sosson Tadadjeu

    (University of Dschang , Cameroon)

  • Yann Nounamo

    (University of Douala, Douala, Cameroon)

Abstract

This paper aims to investigate the effect of financial development on economic complexity using a panel dataset of 24 African countries over the period 1983-2017. The empirical evidence is based on two different approaches. First, we adopt the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors to account for heteroscedasticity and cross–sectional dependence. Second, we implement the system Generalized Method of Moments to account for endogeneity. The results show that financial development increases economic complexity in Africa. Looking at the regional difference, the results show that this effect is less beneficial for SSA countries.

Suggested Citation

  • Henri Njangang & Simplice A. Asongu & Sosson Tadadjeu & Yann Nounamo, 2021. "Is financial development shaping or shaking economic sophistication in African countries?," Working Papers of the African Governance and Development Institute. 21/018, African Governance and Development Institute..
    • Handle: RePEc:agd:wpaper:21/018
    as

    Download full text from publisher

    File URL: http://www.afridev.org/RePEc/agd/agd-wpaper/Is-financial-development-shaping-or-shaking-economic-sophistication-in-African-countries.pdf
    File Function: Revised version, 2021
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ebeke, Christian & Omgba, Luc Désiré & Laajaj, Rachid, 2015. "Oil, governance and the (mis)allocation of talent in developing countries," Journal of Development Economics, Elsevier, vol. 114(C), pages 126-141.
    2. Mohamed Saadi, 2020. "Remittance Inflows and Export Complexity: New Evidence from Developing and Emerging Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 56(12), pages 2266-2292, December.
    3. Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Trung V. Vu, 2022. "Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities," Empirical Economics, Springer, vol. 63(3), pages 1571-1604, September.
    6. Canh, Nguyen Phuc & Schinckus, Christophe & Thanh, Su Dinh, 2020. "The natural resources rents: Is economic complexity a solution for resource curse?," Resources Policy, Elsevier, vol. 69(C).
    7. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    8. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    9. Hartmann, Dominik & Guevara, Miguel R. & Jara-Figueroa, Cristian & Aristarán, Manuel & Hidalgo, César A., 2017. "Linking Economic Complexity, Institutions, and Income Inequality," World Development, Elsevier, vol. 93(C), pages 75-93.
    10. Canh Phuc Nguyen & Christophe Schinckus & Thanh Dinh Su, 2020. "The drivers of economic complexity: International evidence from financial development and patents," International Economics, CEPII research center, issue 164, pages 140-150.
    11. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    12. Shujin Zhu & Renyu Li, 2017. "Economic complexity, human capital and economic growth: empirical research based on cross-country panel data," Applied Economics, Taylor & Francis Journals, vol. 49(38), pages 3815-3828, August.
    13. Asongu, Simplice A. & Nwachukwu, Jacinta C., 2017. "The Impact of Terrorism on Governance in African Countries," World Development, Elsevier, vol. 99(C), pages 253-270.
    14. Sweet, Cassandra & Eterovic, Dalibor, 2019. "Do patent rights matter? 40 years of innovation, complexity and productivity," World Development, Elsevier, vol. 115(C), pages 78-93.
    15. Lan Khanh Chu, 2020. "The effects of financial development on economic sophistication: evidence from panel data," Applied Economics Letters, Taylor & Francis Journals, vol. 27(15), pages 1260-1263, September.
    16. repec:hal:pseose:halshs-01112661 is not listed on IDEAS
    17. Hsu, Po-Hsuan & Tian, Xuan & Xu, Yan, 2014. "Financial development and innovation: Cross-country evidence," Journal of Financial Economics, Elsevier, vol. 112(1), pages 116-135.
    18. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
    19. Peter Kannen, 2020. "Does foreign direct investment expand the capability set in the host economy? A sectoral analysis," The World Economy, Wiley Blackwell, vol. 43(2), pages 428-457, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kamguia, Brice & Tadadjeu, Sosson & Miamo, Clovis & Njangang, Henri, 2022. "Does foreign aid impede economic complexity in developing countries?," International Economics, Elsevier, vol. 169(C), pages 71-88.
    2. Henri Njangang & Youssouf Nvuh-Njoya, 2023. "Unravelling the link between democracy and economic complexity: fresh evidence from the Varieties of Democracy data," SN Business & Economics, Springer, vol. 3(3), pages 1-32, March.
    3. Stéphane Mbiankeu Nguea & Hervé Kaffo Fotio & Louise Angèle Baida, 2022. "Investigating the effects of globalization on economic sophistication in selected African countries," African Development Review, African Development Bank, vol. 34(3), pages 324-338, September.
    4. Honoré Tekam Oumbé & Ronald Djeunankan & Alain Mekia Ndzana, 2023. "Does information and communication technologies affect economic complexity?," SN Business & Economics, Springer, vol. 3(4), pages 1-25, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kamguia, Brice & Tadadjeu, Sosson & Miamo, Clovis & Njangang, Henri, 2022. "Does foreign aid impede economic complexity in developing countries?," International Economics, Elsevier, vol. 169(C), pages 71-88.
    2. Henri Njangang & Youssouf Nvuh-Njoya, 2023. "Unravelling the link between democracy and economic complexity: fresh evidence from the Varieties of Democracy data," SN Business & Economics, Springer, vol. 3(3), pages 1-32, March.
    3. 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.
    4. Avom, Désiré & Keneck-Massil, Joseph & Njangang, Henri & Nvuh-Njoya, Youssouf, 2022. "Why are some resource-rich countries more sophisticated than others? The role of the regime type and political ideology," Resources Policy, Elsevier, vol. 79(C).
    5. Nguyen, Canh Phuc, 2022. "Does economic complexity matter for the shadow economy?," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 210-227.
    6. Gnangnon, Sèna Kimm, 2022. "Effect of the utilization of non-reciprocal trade preferences offered by the QUAD countries on beneficiary countries' economic complexity," Journal of the Japanese and International Economies, Elsevier, vol. 65(C).
    7. Canh Phuc Nguyen & Thanh Dinh Su, 2021. "Financing the economy: The multidimensional influences of financial development on economic complexity," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(4), pages 644-684, May.
    8. Nguyen, Canh Phuc, 2021. "Gender equality and economic complexity," Economic Systems, Elsevier, vol. 45(4).
    9. Honoré Tekam Oumbé & Ronald Djeunankan & Alain Mekia Ndzana, 2023. "Does information and communication technologies affect economic complexity?," SN Business & Economics, Springer, vol. 3(4), pages 1-25, April.
    10. Ben Saad, Myriam & Brahim, Mariem & Schaffar, Alexandra & Guesmi, Khaled & Ben Saad, Rym, 2023. "Economic complexity, diversification and economic development: The strategic factors," Research in International Business and Finance, Elsevier, vol. 64(C).
    11. Brice Kamguia & Joseph Keneck‐Massil & Henri Njangang & Sosson Tadadjeu, 2024. "Sophistication gap between countries: The effect of research and development expenditure," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(3), pages 739-778, July.
    12. Gnangnon, Sèna Kimm, 2023. "The Quality of Aid for Trade Flows and Economic Complexity," EconStor Preprints 271538, ZBW - Leibniz Information Centre for Economics.
    13. Sèna Kimm Gnangnon, 2024. "The quality of Aid for Trade flows and economic complexity," International Economics and Economic Policy, Springer, vol. 21(4), pages 705-747, October.
    14. Trung V. Vu, 2022. "Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities," Empirical Economics, Springer, vol. 63(3), pages 1571-1604, September.
    15. Fahim Al Marhubi, 2021. "Economic Complexity and Inflation: An Empirical Analysis," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 49(3), pages 259-271, September.
    16. Isaac Ketu & Jules-Eric Tchapchet Tchouto & Arsene Mouongue Kelly, 2022. "Does infrastructure development drive economic complexity in African countries?," Economics Bulletin, AccessEcon, vol. 42(4), pages 2043-2053.
    17. Dung Phuong Hoang & Lan Khanh Chu, 2023. "Progression to Higher Economic Complexity: The Role of Institutions," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(4), pages 4339-4366, December.
    18. Isaac Ketu & Paul Ningaye, 2024. "Sectoral Employment Shares Shape Economic Complexity: Empirical Evidence from African Countries," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 16(2), pages 168-187, May.
    19. Nguyen, Canh Phuc & Su, Thanh Dinh, 2021. "Economic integration and economic complexity: The role of basic resources in absorptive capability in 40 selected developing countries," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 609-625.
    20. Eslam A. Hassanein & Nagwa Samak & Salwa Abdelaziz, 2024. "The synergetic effect of economic complexity and governance on quality of life: policy thresholds," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-20, December.

    More about this item

    Keywords

    Financial development; Economic complexity; Panel data analysis; Africa;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • P14 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Property Rights
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:agd:wpaper:21/018. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Asongu Simplice (email available below). General contact details of provider: https://edirc.repec.org/data/agdiycm.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.