Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities

Trung Vu

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: It is well established in the long-term development literature that deeply rooted institutions are the fundamental drivers of comparative prosperity across the world. This study contributes to this line of inquiry by investigating the extent to which the quality of institutions helps shape international differences in economic complexity – a novel measure of productive capabilities. More specifically, economic complexity corresponds to an enhanced capacity to produce and export a diverse range of sophisticated (high-productivity) products, which is highly predictive of future patterns of growth and development. The central hypothesis is that institutions are linked to higher degrees of economic complexity via strengthening incentives for innovative entrepreneurship, fostering human capital accumulation, and directing human resources towards productive activities. Employing data for up to 115 countries, I consistently obtain precise estimates of the positive effects of institutional quality, measured by the Economic Freedom of the World Index, on economic complexity. The findings highlight the important role of establishing well-functioning institutions in driving structural transformation towards productive activities, which contributes to alleviating the persistence of underdevelopment.

Keywords: Institutions; Economic freedom; Economic complexity; Productive capabilities (search for similar items in EconPapers)
JEL-codes: H11 O11 O43 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-eff and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/234103/1/manuscript.pdf (application/pdf)

Related works:
Journal Article: Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities (2022)
Working Paper: Does institutional quality foster economic complexity? (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:234103

Access Statistics for this paper

More papers in EconStor Preprints from ZBW - Leibniz Information Centre for Economics Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().