Economic complexity, institutions, and industrial policy

Renan Sousa and Bernardo Mueller

Chapter 16 in Handbook on Institutions and Complexity, 2025, pp 325-348 from Edward Elgar Publishing

Abstract: This chapter addresses the interplay between economic complexity methods and industrial policy, emphasizing the critical role of institutions in successful policy implementation. Economic complexity methods, including metrics of economic complexity, the product space, and relatedness, have enriched our understanding of countries’ diversification potential and international and regional economic variations. In the context of a renewed interest in industrial policy, these methods offer insights for designing more effective policies. However, the chapter argues that the realization of these policies heavily depends on emergent institutional frameworks. Institutions shape the ability to advance, capture, or obstruct industrial policies and influence the bureaucratic capacity for policy execution and refinement. Thus, while economic complexity methods provide a valuable toolset for identifying diversification paths and designing industrial policy, the chapter underscores the indispensable role of adaptive, supportive institutions in overcoming implementation challenges and achieving economic development goals.

Keywords: Economic complexity; Institutions; Industrial policy; Product space; Market failure; Tacit collective knowledge; Relatedness (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035309719
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