Do Economic Complexity Drivers Differ by Income Level? Insights From a Global Perspective

Devran Şanlı, Nadide Gülbay Yiğiteli and Havanur Ergün Tatar

SAGE Open, 2024, vol. 14, issue 2, 21582440241239412

Abstract: This study examines the drivers of economic complexity for 97 countries over the period 1995 to 2020 by income sub-groups. To investigate determinants of complexity, we develop five novel indexes. Using two-step system GMM (2SGMM) regression with the robust standard errors method, we found that institutional quality, health dimensions and macroeconomic conditions were enormously significant economic complexity drivers. However, the findings vary according to the country groups with different income levels. While the importance of openness and health dimensions are prominent in low and middle-income countries, capital stock and openness are the principal elements in the high-income group. The institutional quality is statistically significant and considerably affects on complexity in each group and across the panel. The education dimension of human capital has a positive effect only in the high-income group and across the panel, while it is negative in the middle and low-income groups, but its effect is weak. Moreover, these findings are valid in the long run. From a policy perspective, the findings suggest that macroeconomic policies focused on institutional quality, openness and healthcare as critical components of economic complexity should be crucial goals, especially for low and middle-income countries. JEL Classification: O11, O43, I15, I25.

Keywords: Economic Complexity Index; Institutional Quality Index; Macroeconomic Stability Index; Two-step System GMM; Income Groups (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:14:y:2024:i:2:p:21582440241239412

DOI: 10.1177/21582440241239412

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