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Modelling the Relationship between Financial Development, Innovation, Economic Complexity and Economic Growth in South Africa: The VAR Approach

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  • Chuma Maxwele

    (Nelson Mandela University)

Abstract

A smoothly-functioning financial system has been shown to be growth enhancing as it promotes entrepreneurial innovation and technological progress, which both rapidly increase capital accumulation. Literature sources also reveal that when robust financial development and innovation are integrated, they can lead directly to a sophisticated economic system through which new products are created. Over the years, South Africa's financial system has been recognised as one of the advanced in the world, solidifying its position as one of the best on the African continent. But can South Africa’s current financial system be used to advance economic growth through the channels of innovation and economic complexity in the country? This study examines the association between financial development, innovation and economic complexity in South Africa from year 2011 to 2021 using the vector autoregressive (VAR) model. The results reveal that financial development has a negative impact on economic complexity, innovation, economic growth, and trade openness in South Africa. The empirical results of this paper provide policy recommendations and insights for South Africa.

Suggested Citation

  • Chuma Maxwele, 2025. "Modelling the Relationship between Financial Development, Innovation, Economic Complexity and Economic Growth in South Africa: The VAR Approach," Africagrowth Agenda, Africagrowth Institute, vol. 22(4), pages 4-8.
    • Handle: RePEc:afj:journ2:v:22:y:2025:i:4:p:4-8
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-afgrow_v22_n4_a1
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