Abstract
In this paper, we analyze the relationship between economic complexity and environmental performance using annual data on 88 developed and developing countries for the period of 2002–2012. We use the Economic Complexity Index, which links a country’s productive structure with the amount of knowledge and know-how embodied in the goods it produces, and the Environmental Performance Index as a measure of environmental performance. We show that moving to higher levels of economic complexity leads to better overall environmental performance, which means that sophistication of exported products does not induce environmental degradation. Nevertheless, we find that the effect of economic complexity on air quality is negative, i.e., exposure to PM2.5, CO_2, methane and nitrous oxide emissions increases, and these findings are robust across alternative econometric specifications.
Highlights
Since the industrial revolution, new technologies have radically transformed sectors/industries, emphasizing the role of countries’ economic structures on enhancing modernization of production
Economic complexity has a positive relationship with environmental performance and the control variables enter with the expected sign
The effect of economic complexity on environmental performance has been verified with fixed-effects instrumental variables estimation techniques
Summary
New technologies have radically transformed sectors/industries, emphasizing the role of countries’ economic structures on enhancing modernization of production. The transformation of the productive structure and the process of industrialization increase energy consumption and carbon emissions [88, 94, 143]. Green technology and eco-innovation are decisively geared at lessening, if not reversing, the negative impacts of pollution by creating new products/services and business methods These include among others, innovations in renewable energy, recycling, wastewater treatment, and. Higher complexity of exported products leads to lower air quality (i.e., higher exposure to PM2.5, higher CO2 , methane and nitrous oxide emissions), higher energy use and lower renewable energy consumption This result is consistent across various specifications in a global sample that includes 88 developed and developing countries over the period of 2002-2012.
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