Economic complexity, human capital, and FDI attraction: A cross country analysis

2021

Preprint

This article has examined the effect of economic complexity on services export diversification. It has built on two arguments. The first one draws from Eichengreen and Gupta (2013b) and states that countries that export complex products would have a high penetration in the international goods market, and establish a network that could be exploited to expand their range of services export items. Second, by inducing higher inflows of foreign direct investment (FDI), greater economic complexity could contribute to fostering services export diversification. The empirical analysis supported these two arguments. The implications of the outcomes are discussed in the conclusion.

Section: Theoretical Discussion On the Effect Of Economic Complexity On Services Export Diversificationmentioning

confidence: 99%

Effect of Economic Complexity on Services Export Diversification: Do Foreign Direct Investment Inflows Matter?

2021

Preprint

“…This is because the ability of people to form social and professional networks plays a critical role in the capacity of a country to produce sophisticated products (e.g., Fukuyama, 1996;Hausmann, 2016;Hidalgo, 2015). Sadeghi et al (2020) and Gómez-Zaldívar et al (2021) have demonstrated empirically[11] that increasingly complex (or sophisticated) economies attract higher FDI in ows. Mayer et al (2010) have established that there exists a signi cant 'home bias' in rms' decisions to engage in manufacturing investment in the host country: rms tend to set up new a liates closed to existing a liates within the same industrial group.…”

Section: Theoretical Discussionmentioning

confidence: 99%

Effect of the Utilization of Unilateral Trade Preferences on Foreign Direct Investment flows to Beneficiary Countries

2021

Preprint

This article has explored the effect of non-reciprocal trade preferences (NRTPs) offered by the QUAD countries to developing countries on the foreign direct investment (FDI) flows to these developing countries. The analysis has used an unbalanced panel dataset of 108 beneficiary countries of NRTPs over the period 2002-2019. By means of the two-step system GMM, it has established that low utilization rates of GSP programs are associated with greater FDI flows to less advanced beneficiary countries, including, least developed countries (LDCs). However, high utilization rates of GSP programs induces greater FDI flows to advanced beneficiary countries, including NonLDCs. In addition, low (high) utilization rates of other trade preferences generate higher FDI flows to less advanced beneficiary countries (relatively advanced countries). The analysis has also shown that GSP programs and other trade preferences are strongly complementary in enhancing FDI inflows, especially for high utilization rates of other trade preferences programs. The utilization of each of these two blocks of NRTPs induces greater FDI flows to countries that endeavour to export increasingly complex products, or those with lower dependence on natural resources. Finally, the utilization of NRTPs generates higher FDI inflows to countries that substantially liberalize their trade regimes. JEL Classification: F13; F14; F20.

“…Countries that improve their level of economic complexity can attract FDI in ows (e.g., Gómez-Zaldívar et al 2021) because MNEs may choose to set up plants in countries that manufacture complex products, given the speci c advantages of these countries in terms of productive knowledge and exclusive capabilities. Gómez-Zaldívar et al (2021) and Sadeghi et al (2020) have found evidence that countries with greater economic complexity attract higher FDI ows, while Antonietti and Franco (2021) have uncovered that economic complexity does not (Granger) cause FDI ows to developing countries. In spite of the unconclusive outcomes of the limited existing literature on the effect of economic complexity on FDI in ows, we do consider the variable "FDI" as endogenous in the present analysis.…”

Section: Econometric Approachmentioning

confidence: 99%

Effect of the Utilization of Non-Reciprocal Trade Preferences offered by the QUAD on Economic Complexity in Beneficiary Countries

2021

Preprint

This article aims to contribute to the nascent literature on the effect of non-reciprocal trade preferences (NRTPs) on industrialization in beneficiary countries. In so doing, it complements the few existing works on the effect of NRTPs on export product diversification by investigating the effect of NRTPs (both the Generalized System of Preferences- GSP programs- and other non-reciprocal trade preferences) offered by the QUAD countries on the level of economic complexity in beneficiary countries. The analysis has relied on 110 beneficiary countries of these NRTPs over the period 2002–2018, and made primarily use of the two-step system Generalized Methods of Moments estimator. The findings are quite interesting. First, beneficiary countries tend to use GSP programs (rather than other trade preferences) to achieve greater economic complexity, and the positive effect of the utilization of GSP programs on economic complexity is higher for high income beneficiary countries than relatively less advanced beneficiary countries. Second, both GSP programs and other non-reciprocal trade preferences are strongly complementary in promoting economic complexity in beneficiary countries, in particular if their usage reach high levels. Third, the utilization of NRTPs enhances economic complexity in countries that receive high foreign direct investment flows. Finally, development aid flows are strongly complementary with the utilization of NRTPs in fostering economic complexity in beneficiary countries, especially for high amounts of development aid. This suggests the need for preference-granting countries (that are also suppliers of development aid) to offer both generous NRTPs and higher development aid flows if those NRTPs are to be effective in expanding the manufacturing base in the beneficiary countries.Jel Classification: F13; F14; O14.