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Complexity, Specialization, and Growth

Benno Ferrarini and Pasquale Scaramozzino
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Benno Ferrarini: Asian Development Bank

No 344, ADB Economics Working Paper Series from Asian Development Bank

Abstract: This paper analyzes the role of complexity in production on the level of output and on its rate of growth. We develop an endogenous growth model with human capital accumulation, where increased complexity could exert either a positive or a negative effect on the level of output but always a positive effect on its rate of growth. Our empirical measure of complexity is derived from net trade flows, and is based on the product space description of production sectors in the global economy. The evidence from a broad cross-section of countries is consistent with the main theoretical predictions of the model, and supports the view that production complexity is important in order to account for differences in economic performance. An indicator of the intensity of vertical trade among countries is also shown to be relevant to explain output performance.

Keywords: international trade flows; vertical trade; economic growth; complexity (search for similar items in EconPapers)
JEL-codes: F43 O11 O14 O15 O33 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2013-07-20
Note: http://www.adb.org/sites/default/files/pub/2013/economics-wp-344-complexity-specialization-growth.pdf
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