Abstract
This study examines the extent to which countries’ economic complexity and export diversification can help them to absorb external shocks in a context of global uncertainties. Our findings show that countries are vulnerable to external shocks of commodity prices and geopolitical risk. Furthermore, a higher economic complexity reduces the economic growth volatility and the misery index (sum of inflation and unemployment)—however, a higher export diversification can also only reduce the economic growth volatility while it indices higher misery index. Interestingly, countries with a higher economic complexity appear to be more vulnerable to external shocks, while countries with higher export diversification seem to be less vulnerable in terms of misery index. This study further analyses the roles of economic complexity and export diversification during two periods, pre- and post- the 2008 global financial crisis. Our results show that both associations of economic complexity and export diversification with external shocks are reduced in the post crisis period. This implies that the economic complexity seems to generate a higher vulnerability to global shocks in the pre- crisis time, while export diversification can help countries to absorb the consequences of such crisis.
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Notes
Actually, this is not really a recent idea since Adam Smith thought that the division of labour was related to national wealth because a higher specialization in economic activities increases the efficiency of economic activities (Hidalgo and Hausmann 2009).
We aligned our scope of data related to economic complexity with those about export diversification. Countries with missing values were dropped. The final sample includes 59 countries.
As defined in the economic vulnerability index database (see https://ferdi.fr/en/indicators/a-retrospective-economic-vulnerability-index)).
They are United Arab Emirates, Chile, Israel, Korea Rep., Oman, Saudi Arabia, Singapore, Uruguay.
In this study, we use the level of 10% GDP as the hurdle rate of low and high oil rent country. These countries are Angola, United Arab Emirates, Congo, Rep., Algeria, Ecuador, Gabon, Nigeria, Iran, Islamic Rep., Oman, Saudi Arabia, Venezuela, RB.
They are Mexico, Nigeria, Tanzania, see https://www.worldatlas.com/articles/the-world-s-most-war-torn-countries.html for a complete list of war-torn countries.
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Canh Phuc Nguyen receives funding from the University of Economics Ho Chi Minh City, Vietnam
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Canh Phuc Nguyen receives funding from the University of Economics Ho Chi Minh city (UEH), Vietnam
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Nguyen, C.P., Schinckus, C. How do countries deal with global uncertainty? Domestic ability to absorb shock through the lens of the economic complexity and export diversification. Qual Quant 57, 2591–2618 (2023). https://doi.org/10.1007/s11135-022-01478-7
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DOI: https://doi.org/10.1007/s11135-022-01478-7