Does financialization threaten productive development?

This paper explores financializaton’s effects on productive development—proxied by the Economic Complexity Index (ECI)—in a panel of 78 countries from 1975 to 2019. Financial globalization affects negatively ECI in Latin America, the Middle East and North Africa region, and South Asia. In Latin America, stock market capitalization also harms economic complexity by incentivizing short-term capital gains at the expense of technological upgrading. In developed economies, liquid liabilities and financial globalization support economic complexity, while private credit is detrimental.