Technology, Finance, and Institutional Conditions for Structural Change in Upper-Middle-Income Countries: A New Structural Economics Perspective

This paper employs the new structural economics (NSE) framework to examine how technological advancement and financial deepening affect structural change in upper-middle-income countries (UMICs), with institutional quality serving as a conditioning factor rather than an independent catalyst. The main purpose of this article is to integrate previously separated factors to understand their overall effects on structural change in UMICs. To estimate the relationships and address the problem of endogeneity, this paper employs two-stage instrumental-variable regression with Driscoll-Kraay standard errors for long-term and a panel error correction model (ECM) for the short-term using data from 37 countries between 1996 and 2023. The findings indicate that technological advancement and financial deepening have a significant positive effect on long-term structural development. This paper explains the long-run relationship that exists between technology and finance in promoting structural change, while institutional quality conditions these effects instead of acting as an independent stimulus; hence, it presents policymakers with actionable recommendations on how to attain sustainable structural change. CLASSIFICATION JEL: O33, O47, O14, G20