Export Complexity and the Product Space: Any Role for Finance?

In this paper we compute economic complexity following Tacchella et al. (2012) for Italian provinces (NUTS 3) in the period 1998-2017 and test the impact of provincial financial structure on the former. We implement several dynamic panel models and tackle endogeneity issues and the persistence of dependent variable by estimating system GMM specifications. We find that non-bank financial sources have a positive role on complexity. Moreover, a greater importance of finance firms relative to banks increases complexity. Finally, a greater orientation towards small local banks is detrimental for production complexity. We show that such effects are heterogeneous from a temporal perspective and jointly interpret them as pointing to a positive role of financial development as a driver of complexity.