The Dynamics of Export Diversification, Economic Complexity and Economic Growth Cycles: Global Evidence

Published date01 August 2022
Date01 August 2022
DOI10.1177/0015732520970441
Subject MatterArticles
The Dynamics of Export
Diversification, Economic
Complexity and
Economic Growth
Cycles: Global Evidence
Nguyen Phuc Canh1 and Su Dinh Thanh2
Abstract
This article investigates the dynamics of export diversification, economic com-
plexity and economic growth cycles. By applying several econometric techniques
for estimating a panel data set of 70 economies over the period from 1996 to
2014, the results have been threefold. First, there is Granger bi-directional causal-
ity between economic complexity and export diversification, while unidirectional
Granger causality exists from economic complexity to economic growth cycles.
Second, the result attained from the three-stage least squares estimate demon-
strates that economic complexity and export diversification significantly impact
each other. Notably, the effect of economic complexity is found to be negative
on economic growth cycles, implying that the dynamics of economic complexity
and export diversification generate a reduction in economic fluctuations. Third,
by splitting the sample into two subsamples (i.e., 32 high-income economies and
38 low- and middle-income economies) and two sub-periods (i.e., 1994–2007
and 2008–2014), the results show that the positive dynamics between economic
complexity and export diversification are consistent with income levels and
time periods. However, the negative impact of economic complexity on eco-
nomic growth cycles is statistically significant only for the group of high-income
economies and during the 1996–2007 period. These findings are checked by sev-
eral estimators and different proxies of export diversification, economic growth
cycles and economic complexity.
Article
1 School of Banking, University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam.
2 School of Public Finance, University of Economics Ho Chi Minh City, Ho Chi Minh, Vietnam.
Corresponding author:
Nguyen Phuc Canh, School of Banking, University of Economics Ho Chi Minh City, 59C Nguyen Dinh
Chieu, District 3, Ho Chi Minh City–700000, Vietnam.
E-mail: canhnguyen@ueh.edu.vn
Foreign Trade Review
57(3) 234–260, 2022
© 2020 Indian Institute of
Foreign Trade
Reprints and permissions:
in.sagepub.com/journals-permissions-india
DOI: 10.1177/0015732520970441
journals.sagepub.com/home/ftr
Canh and Thanh 235
JEL Codes: F13, F14, O19, E32
Keywords
Economic complexity, export diversification, economic cycle, economic linkages
Introduction
In recent years, export dynamics and economic factors have received considerable
attention from economics scholars and practitioners. For instance, Le et al. (2020)
document the long-term relationship between export diversification (ED), macroe-
conomic factors and income inequality. Interestingly, an inverted U-shaped nexus
between income inequality and ED is strongly emphasised. In fact, international
trade is said to have contributed positively to domestic economic activities through
productivity gains and job creation (e.g., see Bresnahan et al., 2016). In the dynam-
ics of international trade, it has been shown empirically that ED has significant
influences on domestic socio-economic activities and structures (see Le et al.,
2020), especially new economic activities (Osakwe et al., 2018). That is, ED might
have a strong link with the domestic economic structure or economic complexity.
The topic of economic complexity has been of intense interest to economists
over the recent years (Canh et al., 2020; Lapatinas, 2019), not least with the intro-
duction of a new index of economic complexity, the Economic Complexity Index
(ECI) (Hidalgo & Hausmann, 2009). The ECI quantifies the amount of knowl-
edge materialised in a country’s productive structure, which represents not only
the structure but also the knowledge in its production system (Lapatinas, 2019). In
the same vein, some studies have considered the determinants of economic com-
plexity (e.g., Hidalgo & Hausmann, 2009), while others have examined the impact
of economic complexity on economic development, such as income inequality
reduction (see Hartmann et al., 2017). In particular, some previous studies (e.g.,
Bustos et al., 2012; Hidalgo & Hausmann, 2009) indicate the nestedness of the
economic complexity among countries in the global markets, which implies an
economic link between export dynamics and domestic economic complexity.
Moreover, previous studies (Hidalgo & Hausmann, 2009) find positive influences
of economic complexity on growth. There is, however, likely no study on the link-
age between ED and economic complexity, and the effects of these dynamics on
economic fluctuations.
Therefore, this article endeavours to shed some light on the nexus between ED
and economic complexity, and also the impacts on economic fluctuations. In
doing so, the dynamic links between ED and economic complexity are investi-
gated first. The article then examines the effects of these dynamics on the cycles
of economic growth to explore the linkage between domestic economic complex-
ity and international ED and their roles in curbing or enhancing economic growth.
Empirically, the analysis uses a global sample of 70 economies, consisting of 32
high-income economies (HIEs) and 38 low- and middle-income economies
(LMEs) over the period from 1996 to 2014; this is the best sample, given the

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