Does corruption hinder the effect of financial development on economic complexity? Evidence from MENA countries

Abstract The objective of this article is to assess the effect of corruption in the relationship between financial development and economic complexity in Middle Eastern and North African countries from 1995 to 2020. Using the two-stage least squares method, the results reveal significant heterogeneous effects of financial development on economic complexity as a function of corruption. Specifically, the results show that corruption worsens the effect of financial access, depth, and efficiency on economic complexity over the period. In contrast, it improves the effect of financial stability on economic complexity in the region. The results appear to be robust to additional factors, another measure of economic complexity, and change in estimation technique. This result calls on policy makers to tighten controls on corruption to allow financial development to significantly enhance economic complexity. JEL Codes: D63, K42, G20.