Research Paper 14: Economic complexity and economic growth

The topic of economic complexity has been increasingly discussed in academic literature in recent years. An economy is described as complex if it is diversified, i.e. can produce a wide range of products, and the products in which it specializes are as unique as possible. Complexity can therefore be seen as a latent measure of the available and utilized knowledge. A large number of studies have shown that economic complexity has a positive influence on economic growth.

Existing approaches usually measure economic complexity on the basis of the structure of gross exports at product level. However, gross exports do not necessarily reflect the contribution of an economy to an exported product, as imported foreign value added is also included in gross exports. This research paper therefore approaches economic complexity on the basis of value-added exports at industry level. Value-added exports are defined as the domestic value added in exported intermediate or end products that are ultimately demanded abroad.

It turns out that economic complexity based on value-added exports leads to substantially different complexity rankings of countries compared to the established approximation based on gross exports. In addition, the relationship between economic complexity and GDP per capita growth is significantly stronger and more robust in a panel model for a sample of 40 economies.