How do economic policy uncertainty, geopolitical risk, and natural resources rents affect economic complexity? Evidence from advanced and emerging market economies

Abstract

Progressing to higher economic complexity is widely believed to be a vital economic growth strategy. While most studies examine factors that enhance the sophistication of an economy, there is limited knowledge about the obstacles to economic complexity evolution. This research aims to examine the new barriers to economic sophistication. We adopt an advanced panel quantile technique to a sample of 12 advanced economies and seven emerging market economies from 1997 to 2019. The empirical analysis shows that while economic policy uncertainty poses a threat to economic complexity evolution, interestingly, geopolitical risks bring about opportunities for upgrading economic sophistication. This study also validates the “Dutch disease” effect caused by natural resources rents in all the sampled countries. In addition, the impacts of economic policy uncertainty, geopolitical instability, and natural resources rents on economic complexity are found to be heterogeneous, not only across the quantiles of economic complexity but also between advanced and emerging market economies. Our findings provide insightful and adaptive implications for different country segments for accelerating economic sophistication.