The knowledge-based products and economic complexity in developing countries

Abstract

Economic growth and development requires greater access to global markets, while developing countries face many challenges in terms of trade liberalization. That is why most of the countries relying on natural income sources have not been able to improve their indicators of economic complexity and high technology utilization. The purpose of this study was to investigate the impact of trade liberalization on the economic complexity as a strategy adopted by the Middle East developing economies during the period 2002–2017; using the panel vector auto regression model (PVAR). Immediate reaction test results show that, over a period of 10 years, economic complexity increases with positive shock from variables of trade freedom, foreign direct investment and gross fixed capital formation, but in the long run, the effect of imports of intermediate and capital goods is initially increasing and, after a short period, has a positive downward effect. In general, the results of this study recommend that; in order to achieve a proper share of export revenues in economic growth, the Middle East countries need to strengthen the foreign trade economy through trade liberalization and experience the impact of imports of medium and final capital goods, gross capital formation, and foreign direct investment in the index of economic complexity.

Effect of Productive Capacities on Economic Complexity: Do Aid for Trade flows Matter?

“…Gnangnon (2018) has found that higher AfT ows for trade policy and regulation are associated with greater trade policy liberalization. As trade policy liberalization can also lead to greater economic complexity (e.g., Sepehrdoust et al 2019 -see also the discussion below concerning the effect of trade openness on economic complexity), it could ensue that an increase in AfT ows would promote economic complexity.…”

“…In contrast with the voluminous work on the macroeconomic determinants of export product diversi cation, few studies have investigated the macroeconomic determinants of economic complexity (e.g., Chu, 2020;Hausmann and Hidalgo, 2014;Lapatinas, 2019;Lapatinas and Litina, 2019;Sepehrdoust et al, 2019). The baseline model speci cation presented below draws from these studies, and includes, apart from our main variables of interest -namely the indicators of productive capacities (i.e, overall productive capacities and its components) as well as total AfT ows -, a set of control variables that are deemed to in uence the effect of these key variables of interest on economic complexity.…”

“…Moreover, by through its positive impact on total factor productivity (e.g., Föllmi et al, 2018;Hübler and Pothen, 2017;Melitz 2003;Miller and Upadhyay, 2000), trade openness can induce greater economic sophistication. Sepehrdoust et al (2019) have reported that trade policy liberalization is conducive to greater economic complexity. However, in their analyses that have used trade openness as a control variable, Lapatinas (2019) and Lapatinas and Litina (2019) have not found a signi cant effect of trade openness on economic sophistication.…”

“…Shepherd (2007, 2011) and Beverelli et al (2015) have demonstrated theoretically and empirically that development of infrastructure that facilitate trade encourages export product diversi cation, including at the extensive margins. Sepehrdoust et al (2019) have noted the critical role of infrastructure in promoting economic sophistication. Moreover, a number of empirical studies [9] have pointed out that greater access to the ICTs, notably the Internet contributes to enhance trade ows, and promotes both export product diversi cation (e.g., Visser, 2019) and services export diversi cation (e.g., Gnangnon, 2020a).…”

“…While there is an increasing number of studies [8] looking at the macroeconomic effects of economic complexity, very few works have considered the determinants of economic complexity (e.g., Chu, 2020;Hausmann and Hidalgo, 2014;Lapatinas, 2019;Lapatinas and Litina, 2019;Sepehrdoust et al, 2019). Thus, by investigating the effect of productive capacities on economic complexity, the present paper adds to these few studies on the determinants of economic complexity.…”