The Economic Complexity Index (ECI) and output volatility: High vs. low income countries (original) (raw)
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Economic complexity to boost the selected sub-Saharan African economies
Journal of Economic and Financial Sciences, 2021
Orientation: Economic complexity is a measure of productive capabilities indirectly by looking at the mix of sophisticated products that countries export. The economic complexity index proposed a proxy for diversity and ubiquity of products in the export basket. Research purpose: This study seeks to determine if economic complexity can influence the inequality measured by the Gini index in some selected sub-Saharan African countries. Motivation for the study: The need for the study emanates from the notion that that economic complexity can reduce income inequality hence it is imperative to investigate this relationship in the sub-Saharan African region where most countries produce few sophisticated goods that are also labour-intensive. Inadequate literature within the African continent has also contributed to the formulation of this study. Research approach/design and method: This study employed the autoregressive distribution lag (ARDL) model to analyze a panel data set, which incl...
The knowledge-based products and economic complexity in developing countries
Heliyon
Economic growth and development requires greater access to global markets, while developing countries face many challenges in terms of trade liberalization. That is why most of the countries relying on natural income sources have not been able to improve their indicators of economic complexity and high technology utilization. The purpose of this study was to investigate the impact of trade liberalization on the economic complexity as a strategy adopted by the Middle East developing economies during the period 2002-2017; using the panel vector auto regression model (PVAR). Immediate reaction test results show that, over a period of 10 years, economic complexity increases with positive shock from variables of trade freedom, foreign direct investment and gross fixed capital formation, but in the long run, the effect of imports of intermediate and capital goods is initially increasing and, after a short period, has a positive downward effect. In general, the results of this study recommend that; in order to achieve a proper share of export revenues in economic growth, the Middle East countries need to strengthen the foreign trade economy through trade liberalization and experience the impact of imports of medium and final capital goods, gross capital formation, and foreign direct investment in the index of economic complexity.
Comparative advantage, complexity, and volatility
Journal of Economic Behavior & Organization, 2013
Less developed countries tend to experience higher output volatility, a fact that is in part explained by their specialization in more volatile sectors. This paper proposes theoretical explanations for this pattern of specialization -with the complexity of the goods playing a central role. Specifically, less developed countries with lower institutional ability to enforce contracts, or alternately, with low levels of human capital will specialize in less complex goods which are also characterized by higher levels of output volatility. We provide novel empirical evidence that less complex industries are indeed more volatile.
Improving the Economic Complexity Index
arXiv (Cornell University), 2017
How much knowledge is there in an economy? In recent years, data on the mix of products that countries export has been used to construct measures of economic complexity that estimate the knowledge available in an economy and predict future economic growth. Here we introduce a new and simpler metric of economic complexity (ECI+) that measures the total exports of an economy corrected by how difficult it is to export each product. We use data from 1973 to 2013 to compare the ability of ECI+, the Economic Complexity Index (ECI), and Fitness complexity, to predict future economic growth using 5, 10, and 20-year panels in a pooled OLS, a random effects model, and a fixed effects model. We find that ECI+ outperforms ECI and Fitness in its ability to predict economic growth and in the consistency of its estimators across most econometric specifications. On average, one standard deviation increase in ECI+ is associated with an increase in annualized growth of about 4% to 5%. We then combine ECI+ with measures of physical capital, human capital, and institutions, to find a robust model of economic growth. The ability of ECI+ to predict growth, and the value of its coefficient, is robust to these controls. Also, we find that human capital, political stability, and control of corruption; are positively associated with future economic growth, and that initial income is negatively associated with growth, in agreement with the traditional growth literature. Finally, we use ECI+ to generate economic growth predictions for the next 20 years and compare these predictions with the ones obtained using ECI and Fitness. These findings improve the methods available to estimate the knowledge intensity of economies and predict future economic growth.
Dynamics of Product Complexity in Africa:Structural Estimation Using Structuralists Model
Journal of Heterodox Economics, 2017
Applying the linear LAS (Latin American Structuralists) technological intensity model in Africa, this paper presents African nations are still diversifying their outputs towards the ubiquitous (fewer complexes) products. Put it simple, using the economic complexity index of Africa (explanatory variable) as a proxy for the technological intensity in Africa and per capita GDP gap (explanatory variable) as a proxy for technology gap, the paper presents a significant and positive relationship between economic complexity index of Africa and the time derivative of the economic complexity index of Africa (the explained variable). This implies that “weak” effort African nations exerted so far in diversifying their outputs towards the less ubiquitous commodities and absence of “automatic catch up tendency” (unlike what is presupposed by the mainstream neo-classical growth models). The linear panel data regression is employed on sample of 23 African economies and OECD member economies for the...
Brazilian Journal of Political Economy, 2018
This paper brings elements from the economic complexity literature to the discussions of the structuralist tradition on the central role of manufacturing and productive sophistication to economic growth. Using data provided by the Atlas of Economic Complexity this study sought to verify if countries’ complexity is important to explain convergence and divergence among poor and rich countries and, if so, which are the countries that will be able to reduce the income gap compared to developed countries. The econometric analysis revealed that exports and production complexity is significant to explain convergence and divergence among countries.
Interrogating the association between current account and economic complexity
International Journal of Research in Business and Social Science (2147- 4478)
The study was meant to provide a comparative analysis of the association between economic complexity and the current account performance for selected Sub-Saharan Africa and the BRICS group. Economic complexity measures the sophistication of a country’s productive structure by combining information on the diversity of a country (the number of products it exports), and the ubiquity of its products (the number of countries that export that product). The objective was to investigate whether a short- and long-term relationship exists through a Panel Autoregressive Distributed Lag (PARDL) for 1994 – 2018. Additionally, agricultural exports were also incorporated to measure against the economic complexity Index (ECI). On the current account-ECI relationship, the PARDL estimates exposed a positive and significant impact from ECI on the current account performance in both groups in the long run, while short-run results were insignificant. On the other hand, agricultural exports were an insig...
Production complexity, adaptability and economic growth
Structural Change and Economic Dynamics, 2016
This paper analyzes the impact of production complexity and its adaptability on the level of output and on its rate of growth. We develop an endogenous growth model where increased complexity raises the rate of economic growth but has an ambiguous effect on the level of output. Our empirical measure of production adaptability captures the proximity of production sectors within the product space, which we modify to reflect intra-industry trade and the international fragmentation of production. We test the model against a sample of 89 countries over the two decades to 2009 and find that its main predictions are validated.
Trade and the Economic Complexity of Nations
2017
This paper studies the relationship between trade and the economic complexity of nations. Using data spanning between 1996 and 2015 on the economic complexity index (Simoes & Hidalgo, 2011), various macroeconomic controls, and governance indicators, this research uses a combination of static econometric approaches as well as the Arellano-Bond dynamic panel estimator. Although, there is some evidence for a relationship between economic complexity and the total value of imports and exports, the relationships themselves are likely to be defined by a variety of opposing and reinforcing effects. In contrast, there appears to be a rather weak relationship between weighted-mean applied tariff rates and economic complexity. Nonetheless, this paper simply scratches the surface of the matter and future efforts in studying this relationship is likely to face a number of obstacles.
SAGE Open, 2021
Using aggregate data from 31 Organization for Economic Cooperation and Development (OECD) countries covering periods from 1982 to 2017, this study examines the notion that the level of product complexity is a good determinant of economic growth in the long run. We use the impulse-response function (IRF) computed from the consistent generalized method of moment panel vector autoregressive (GMM pVAR) model to estimate the response of the real output growth to a change in the economic complexity index. The IRF shows that the economic complexity index has a significant impact on economic growth; a 1 standard deviation shock to the economic complexity index at time 0 contributes around 2.34 percentage points to the average rate of growth of output within the first period. The point estimates are positive and significant up to the third period. The cumulative IRF shows that the aggregate impact on economic growth is about 4.4% in the long run. Compared to some widely used innovation proxies such as the gross expenditure on research and development and secondary school enrollment, the economic complexity index performs relatively better in our model in determining economic growth in the long run.