How to develop the capital market?: make countries fitness

Julio Villavicencio Vásquez
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Julio Villavicencio Vásquez: Departamento de Economía de la Pontificia Universidad Católica del Perú

No 2025-542, Documentos de Trabajo / Working Papers from Departamento de Economía - Pontificia Universidad Católica del Perú

Abstract: This paper examines the relationship between the competitiveness of a country’s productive system and the development of its capital markets. Competitiveness is measured using the Economic Fitness Index (EFI), which assess a country’s ability to produce diversified and complex goods. Analyzing panel data from 98 countries (1997–2022), the study finds a significant positive relationship between productive complexity and capital market development, even when controlling for macroeconomic stability, institutional quality, and banking development. The findings suggest that productive complexity enhances the demand for and supply of financial instruments, fostering deeper capital markets. Robustness checks using the Economic Complexity Index (ECI) confirm these results, underscoring the role of economic sophistication in financial market development. Palabras claves: Capital Market Development, Economic Fitness Index (EFI), Economic Complexity Index (ECI). JEL Classification-JE: C12, C14, G14, G15

Keywords: Capital Market Development; Economic Fitness Index (EFI); Economic Complexity Index (ECI). (search for similar items in EconPapers)
Pages: 44
Date: 2025
New Economics Papers: this item is included in nep-fdg
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