The Nexus Between Economic Complexity and Economics Activity: Evidence Based on A Panel Vector Autoregression Model

Abstract

Objective: The objective of this study is to analyze the relationship between economic complexity, as measured by the Economic Complexity Index (ECI), and economic performance, represented by GDP per capita.

Theoretical framework: The study builds upon the existing theoretical framework that suggests a positive relationship between economic complexity and economic growth. It examines the impact of economic complexity on economic performance and productivity in countries.

Method: The study utilizes a Vector Autoregression (VAR) framework and panel data from 1998 to 2020 for 134 countries. The VAR model allows for the analysis of the dynamic interactions between economic complexity and GDP per capita. The Economic Complexity Index (ECI) is used to measure economic complexity.

Result and conclusion: The results of the study indicate a direct and significant correlation between economic complexity and economic performance. Countries with higher levels of economic complexity tend to have higher levels of GDP per capita. The findings suggest that fostering economic complexity through targeted policies can potentially enhance overall economic performance. These results have important implications for policymakers and stakeholders in developing countries.