The Dynamics of Export Diversification, Economic Complexity and Economic Growth Cycles: Global Evidence

Abstract

This article investigates the dynamics of export diversification, economic complexity and economic growth cycles. By applying several econometric techniques for estimating a panel data set of 70 economies over the period from 1996 to 2014, the results have been threefold. First, there is Granger bi-directional causality between economic complexity and export diversification, while unidirectional Granger causality exists from economic complexity to economic growth cycles. Second, the result attained from the three-stage least squares estimate demonstrates that economic complexity and export diversification significantly impact each other. Notably, the effect of economic complexity is found to be negative on economic growth cycles, implying that the dynamics of economic complexity and export diversification generate a reduction in economic fluctuations. Third, by splitting the sample into two subsamples (i.e., 32 high-income economies and 38 low- and middle-income economies) and two sub-periods (i.e., 1994–2007 and 2008–2014), the results show that the positive dynamics between economic complexity and export diversification are consistent with income levels and time periods. However, the negative impact of economic complexity on economic growth cycles is statistically significant only for the group of high-income economies and during the 1996–2007 period. These findings are checked by several estimators and different proxies of export diversification, economic growth cycles and economic complexity. JEL: F13, F14, O19, E32

Economic Complexity and Poverty in Developing Countries

“…We complement the previous analysis by investigating in this section whether the effect of economic complexity on poverty can translate through the economic growth volatility channel. This is because on the one hand, a recent literature has shown that economic complexity is associated with lower aggregate output volatility (e.g., Güneri and Yalta, 2020;Miranda-Pinto, 2021), lower firms' output volatility (e.g., Maggioni et al, 2016), and dampens economic growth cycles (e.g., Canh and Thanh, 2020). On the other hand, a large body of the literature has now well established that greater macroeconomic volatility (e.g., output volatility) due, inter alia, to external shocks (e.g., financial crises and economic crises such as severe commodity prices shocks) adversely affects poor people, and raises poverty in developing countries 6 .…”

“…human development (e.g., Le Caous and Huarng, 2020), reduce economic growth volatility (e.g., Güneri and Yalta, 2020;Maggioni et al, 2016;Miranda-Pinto, 2021), dampen economic growth cycles (e.g., Canh and Thanh, 2020) and increase labor share notably in the context of (e.g., Arif, 2021).…”

Productive Capacities, Economic Growth and Economic Growth Volatility in Developing Countries: Does Structural Economic Vulnerability Matter?

“…More generally, complex goods, i.e., sophisticated goods are those that have a high knowledge content, i.e., those with a high human capital intensity, (e.g., Bustos et al, 2012;Hausmann and Hidalgo, 2009;Hausmann and Hidalgo, 2011;Hidalgo, 2009). Additionally, some studies (e.g., Güneri and Yalta, 2020;Maggioni et al, 2016;Miranda-Pinto, 2021) have obtained empirically that complex economies 12 experience lower economic growth fluctuations, or lower economic growth cycles (e.g., Canh and Thanh, 2020).…”

Development Aid and Export Resilience in Developing Countries: A Reference to Aid for Trade

“…In turn, greater export diversification can lead to lower output volatility and hence increase countries' capacity to withstand external shocks (e.g., Balavac et al, 2016;Haddad et al, 2013). Similarly, greater economic complexity is associated with lower economic growth volatility (e.g., Güneri and Yalta, 2020;Maggioni et al, 2016;Miranda-Pinto, 2021) as well as lower economic growth cycles (e.g., Canh and Thanh, 2020). Given that export resilience could be greater in the context of lower output volatility, we infer that trade policy liberalization would ultimately be associated with greater export resilience through its positive effect on innovation, export product diversification (or economic complexity).…”