Economic Complexity and Sustainable Growth in Developing Countries

Nunung Nuryartono,Syamsul Hidayat Pasaribu,Lilis Hoeriyah

doi:10.15294/edaj.v11i1.47294

Nunung Nuryartono, Syamsul Hidayat Pasaribu + Show 1 more

Open Access

https://doi.org/10.15294/edaj.v11i1.47294

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Abstract

Most developing countries in this study are middle to low-income countries that have a relatively low economic complexity. This study aims to analyze the effect of the economic complexity on economic growth in 86 developing countries in 2010-2019. The method used is the Generalized Method of Moments (GMM) to capture dynamic panel analysis. The estimation results using the System GMM show that economic complexity has a positive effect on economic growth in developing countries. Increasing economic complexity encourages a structural transformation through high value-added economic sectors' creation to produce more complex products for earning a higher income. Human capital does not have a significant effect on economic growth because developing countries have relatively low-quality workers both in terms of education and health. The human capital development and government spending on the health sector are necessary to accelerate sustainable economic growth.

Highlights

Global income inequality shows the bottom 90% group's share of 18.3% to total global wealth in 2019
Based on the description that has been explained, this study aims to analyze the effect of economic complexity on economic growth in cross-country analysis
The grouping of countries refers to the classification of the World Bank (2021) that classifies countries based on the income level (GNI per capita) that consists of high-income, upper-middle, lower-middle and low-income countries

Summary

Introduction

Global income inequality shows the bottom 90% group's share of 18.3% to total global wealth in 2019. The top 10% group share has decreased relatively small since 2010 by 83.9% to 81.7% in 2019 (Credit Suisse, 2019). It is not in line with Kuznets' inverted U-curve that illustrates that at first, an increase in per capita income will worsen the income distribution. Later, increasing per capita income will encourage a more even income distribution. Rising income inequality has accompanied the increase in global income so that the income gap between countries is getting bigger. The literature has emphasized that one of the main causes of large income disparities is economic complexity, i.e., the amount of productive knowledge or capabilities accumulated in a country's production structure (Utkovski et al 2018)

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