Does economic complexity reduce output volatility in developing countries?

Guneri B., YALTA A. Y.

BULLETIN OF ECONOMIC RESEARCH, vol.73, no.3, pp.411-431, 2021 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 73 Issue: 3
  • Publication Date: 2021
  • Doi Number: 10.1111/boer.12257
  • Journal Name: BULLETIN OF ECONOMIC RESEARCH
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, IBZ Online, International Bibliography of Social Sciences, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit, Geobase, Public Affairs Index, zbMATH
  • Page Numbers: pp.411-431
  • Keywords: developing countries, economic complexity, output volatility, panel VAR, REAL EXCHANGE-RATE, GROWTH VOLATILITY, GOVERNMENT SIZE, MONETARY-POLICY, FISCAL-POLICY, DIVERSIFICATION, INSTITUTIONS, DEMOCRACY, BLOCKS, TRADE
  • Hacettepe University Affiliated: Yes

Abstract

Economic complexity measures the productive knowledge embedded in an economy by analysing the export structure of countries. Although the recent literature suggests that economic complexity might arise as a useful tool to lower output volatility by both diversifying export bundles and increasing the sophistication of exports, the empirical evidence on this issue is rather scarce. We contribute to the existing literature by investigating the effect of economic complexity on output volatility for a large set of developing countries. To this end, we apply a panel vector auto regression (PVAR) methodology, which allows us to capture the dynamic interrelationships between variables. The findings of the paper robust to the alternative specifications reveal that economic complexity affects output volatility negatively. Hence, economic policies aimed at diversifying productive capabilities and export bundles should be one of the major priorities in developing countries.