Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities

Abstract

It is well established in the long-term development literature that deeply rooted institutions are the fundamental drivers of comparative prosperity across the world. This study contributes to this line of inquiry by investigating the extent to which the quality of institutions helps shape international differences in economic complexitya novel measure of productive capabilities.More specifically, economic complexity corresponds to an enhanced capacity to produce and export a diverse range of sophisticated (high-productivity) products, which is highly predictive of future patterns of growth and development. The central hypothesis is that institutions are linked to higher degrees of economic complexity via strengthening incentives for innovative entrepreneurship, fostering human capital accumulation, and directing human resources towards productive activities. Employing data for up to 115 countries, I consistently obtain precise estimates of the positive effects of institutional quality, measured by the Economic Freedom of the World Index, on economic complexity. The findings highlight the important role of establishing well-functioning institutions in driving structural transformation towards productive activities, which contributes to alleviating the persistence of underdevelopment.

[Retracted] An Empirical Study on the Relationship between New Energy Vehicle’ Export Sophistication and Industrial Structure Upgrading in China

“…GDP is the overall reflection of the macroeconomic, covering all industries of the national economy, as well as all kinds of industrial economies; that is, the added value of the industrial economy is a part of GDP. Industrial upgrading and GDP growth are connected but distinct, with the development of industrial structure and quality representing an increase in production efficiency [ 22 ]. Although partial and gradual industrial upgrading may not improve a country's overall production efficiency and economic growth, comprehensive and radical industrial upgrading of leading companies is integrated with economic growth [ 23 ].…”

Individualism and climate change policies: international evidence

“…Therefore, individualism helps foster the quality of governance, thereby enhancing countries' willingness to address global climate change. To maximize the feasible sample size, I follow Vu (2022) to use the intensity of ultraviolet radiation as an alternative instrument for governance , as shown in Column (2) [3]. In Column (3), I use both instruments to implement a test for over-identifying restrictions, in which I fail to reject the null hypothesis.…”

Economic Complexity: A New Challenge for the Environment

“…A central hypothesis is that the institutions are linked to higher levels of economic complexity through strengthening incentives for innovative entrepreneurship, facilitating human capital accumulation, and directing human resources towards productive activities [91]. The findings of Vu (2021) [91] highlight a positive effect of institutional quality measured by the Economic Freedom of the World Index on economic complexity in 115 countries.…”