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Human Development, Institutional Quality, and Financial Development: Evidence from Middle-Income Countries

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  • Nguyen Thi Anh Nhu

    (University of Economics and Law, Ho Chi Minh City, Vietnam)

Abstract

Contrasted sharply with a large cohort of studies on financial development in developed and developing countries, research observed particularly in middle-income countries is uncommon. Accordingly, this research explores the effect of human development and institutional quality on financial development in 84 middle-income countries from 2004 to 2022. Furthermore, it examines the impact of the interaction between six indicators of institutional quality and human development on financial development. In this research, financial development is captured in two core sectors of the financial system, namely financial institutions and financial markets. The baseline results estimated by difference-GMM indicate that human development positively influences financial development regarding financial institutions. However, this factor negatively affects financial development regarding financial markets. When institutional quality interacts with human development, it could amplify the impacts on financial development. Specifically, better institutional quality regarding law and government effectiveness could promote financial development in both financial institutions and markets, while control of corruption shows a non-significant link. Findings from this research contribute meaningful evidence to design policies inducing financial development in middle-income countries.

Suggested Citation

  • Nguyen Thi Anh Nhu, 2025. "Human Development, Institutional Quality, and Financial Development: Evidence from Middle-Income Countries," Economics, Sciendo, vol. 13(3), pages 283-301.
    • Handle: RePEc:vrs:econom:v:13:y:2025:i:3:p:283-301:n:1014
    DOI: 10.2478/eoik-2025-0066
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    References listed on IDEAS

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    1. Cristina Jude & Gregory Levieuge, 2017. "Growth Effect of Foreign Direct Investment in Developing Economies: The Role of Institutional Quality," The World Economy, Wiley Blackwell, vol. 40(4), pages 715-742, April.
    2. Mostafa Saidur Rahim Khan & Naheed Rabbani & Yoshihiko Kadoya, 2020. "Is Financial Literacy Associated with Investment in Financial Markets in the United States?," Sustainability, MDPI, vol. 12(18), pages 1-14, September.
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    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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