Financial Architecture, Economic Complexity, and Structural Transformation in Nigeria: An Original Analytical Framework

Financial architecture design, encompassing the balance between bank-based and market-based systems, fundamentally shapes the type of economic complexity a country can sustain, yet this relationship has not been theorised or empirically examined for Nigeria, where structural economic transformation remains incomplete despite growing financial sector depth. This study develops an original analytical framework for understanding the relationship between financial architecture, economic complexity, and structural transformation in Nigeria. The theoretical framework integrates the functional view of finance, complexity economics, and the Schumpeterian theory of economic evolution to propose that the composition of financial development matters as much as its depth for economic complexity and structural diversification. An original Financial Architecture Diversity Index for Nigeria is constructed, measuring the relative development of bank credit, capital market financing, pension fund assets, and insurance sector depth. Economic complexity is measured by the Economic Complexity Index derived from Nigerian export basket data. Structural transformation is measured by the manufacturing sector value-added share and non-oil GDP growth contribution. Bayesian vector autoregression with an original financial architecture shock identification scheme was employed using annual data from 1990 to 2022. Results confirm that balanced financial architecture, combining bank credit and capital market depth, produces stronger economic complexity growth than bank-dominated or market-dominated architectures individually. Capital market shocks have the strongest effect on economic complexity at long horizons (8 to 10 years). The study makes an original contribution by proposing and operationalising the financial architecture-complexity nexus for a sub-Saharan African petrostate context.

Keywords: financial architecture, economic complexity, structural transformation, capital market, Nigeria