The Link between Financial Development and Knowledge-Based Economy - Evidence from Emerging Markets

This paper examines the role of financial development in shaping knowledgebased economy in emerging countries using panel data approach from 1995 to2011. On overall financial development, we find that larger financial sector and financial system that is more bank-based are associated with higher knowledgeeconomy status. On banking development, our results show that a welldeveloped banking sector contributes positively to a country’s standing in the knowledge economy index. Interestingly, we find no evidence that stock market influences the state of knowledge economy. The findings suggest that bank-based financial system is the key financial structure that best supports knowledge-based development in emerging countries.