Abstract
This is the first study to examine the effect of productive capacities on economic complexity and understand whether the Aid for Trade (AfT) flows is important for this effect in recipient countries. The analysis uses a sample of 126 developed and developing countries for 2002-2018 and adopts the two-step system Generalized Method of Moments approach. Results show that strengthening productive capacities enhances economic complexity. Furthermore, productive capacities and total AfT flows are strongly complementary in positively affecting economic complexity, and the degree of complementarity is higher for poor countries than for other AfT-recipient countries. Similarly, productive capacities are strongly complementary with total Non-AfT flows, as well as for total development aid. These findings highlight the need for scaling-up development aid flows, notably AfT flows, in favor of developing countries and poor countries having the lowest levels of productive capacities.
Highlights
Do productive capacities increase economic complexity, and are Aid for Trade (AfT) flows important for the effect of productive capacities on economic complexity? This empirical study addresses these two questions
We find no significant effect of AfT flows on economic complexity, which may indicate the existence of a joint effect of productive capacities and AfT flows on economic complexity
This finding does not align with the estimate in column [1] of Table 1, where a positive effect of AfT flows on economic complexity is found
Summary
Do productive capacities increase economic complexity (i.e., enhance economic sophistication), and are Aid for Trade (AfT) flows important for the effect of productive capacities on economic complexity? This empirical study addresses these two questions. The latter question is highly relevant in the current context where the COVID-19 pandemic has exposed structural vulnerabilities of developing economies, and the least-developed countries1) (LDCs) among them, and underlined the need for national policymakers, international and regional institutions, and the academic community to explore methods for strengthening productive capacities to build economies that are more resilient and immune to future shocks
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
