Does financial center strength drive smart city development? Evidence from global panel data

Abstract

The accelerating digital and green transition has intensified the role of financial centers as investment conduits, making the relationship between financial strength and smart city development both timely and policy-relevant. This study aims to examine whether and to what extent the Global Financial Centres Index (GFCI) explains variation in the Smart Centres Index (SCI) across a global sample of cities. The analysis relies on panel data covering 78 cities from 2019 to 2025, with all calculations performed in R Studio using fixed effects, random effects, and robust error-corrected estimators. The findings reveal a sharp contrast between specifications: while the fixed-effects model detects no significant relationship (β = 0.0013, p = 0.963), the random-effects model identifies a positive and statistically significant link (β = 0.0858, p < 0.001), explaining about 56% of SCI variation (R2 = 0.557). Robustness checks with clustered and Driscoll–Kraay standard errors confirm the stability of this result. City-level effects highlight London (+60.24), New York (+54.39), and Singapore (+39.46) as leading overperformers, while New Delhi (–74.49) and Mumbai (–68.15) emerge as underperformers. These outcomes demonstrate that financial strength matters for smart city advancement, but local governance, infrastructure, and innovation ecosystems critically shape whether financial capacity translates into smart development.