Abstract
Economic growth and development requires greater access to global markets, while developing countries face many challenges in terms of trade liberalization. That is why most of the countries relying on natural income sources have not been able to improve their indicators of economic complexity and high technology utilization. The purpose of this study was to investigate the impact of trade liberalization on the economic complexity as a strategy adopted by the Middle East developing economies during the period 2002–2017; using the panel vector auto regression model (PVAR). Immediate reaction test results show that, over a period of 10 years, economic complexity increases with positive shock from variables of trade freedom, foreign direct investment and gross fixed capital formation, but in the long run, the effect of imports of intermediate and capital goods is initially increasing and, after a short period, has a positive downward effect. In general, the results of this study recommend that; in order to achieve a proper share of export revenues in economic growth, the Middle East countries need to strengthen the foreign trade economy through trade liberalization and experience the impact of imports of medium and final capital goods, gross capital formation, and foreign direct investment in the index of economic complexity.
Highlights
The concept of economic complexity in a country refers to the production of domestically-based knowledge products as well as the diversification of export goods by the country
The contribution of the present study is to examine the impact of main factors on the economic complexity with emphasis on trade liberalization, as a strategy adopted by the Middle East developing economies during the period 2002–2017; using the panel vector auto regression model (PVAR)
Based on the literature review and studies conducted on the relationship between trade liberalization and economic complexity and related government policies, which have been briefly explained in Table 1, this study aims to fill the gap on the subject of economic complexity and examines the impact of trade liberalization on the economic complexity as a strategy adopted by Middle East developing economies during the period 2002–2017; using the panel vector auto regression model (PVAR)
Summary
The concept of economic complexity in a country refers to the production of domestically-based knowledge products as well as the diversification of export goods by the country. Economic complexity is defined as the extent to which countries can produce and export knowledge goods through the knowledge formed in those countries (Lall et al, 2006). Since some products, such as computers and jet engines, can only be produced in complex societies, but commodities such as shirts and cereals can be produced almost everywhere; economic complexity is closely linked to the diversity of useful knowledge used. To create a complex and sustainable economy, societies with knowledge and technology must be able to interact with each other and combine their knowledge to produce products, so the concept of economic complexity is based on the combination of productive products of a given country and reflecting structures they have emerged for combining knowledge (Hidalgo and Hausmann, 2009)
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