IDEAS home Printed from https://ideas.repec.org/a/eme/ijdipp/ijdi-01-2022-0023.html
   My bibliography  Save this article

Effect of economic complexity on services export diversification: do foreign direct investment inflows matter?

Author

Listed:
  • Sena Kimm Gnangnon

Abstract

Purpose - The purpose of this study is to explore the effect of economic complexity on services export diversification. This study has been built on two arguments. The first one draws from Eichengreen and Gupta (2013b) and states that countries that export complex products would have a high penetration in the international goods market and establish a network that could be exploited to expand their range of services export items. Second, by inducing higher inflows of foreign direct investment (FDI), greater economic complexity could contribute to fostering services export diversification. Design/methodology/approach - The empirical analysis uses a panel data set of 109 countries (both developed and developing countries) over the period of 1985–2014, and in particular, non-overlapping sub-periods of five-year average data. Building on the two-step system Generalized Method of Moments, the empirical analysis has provided support for the above-mentioned two theoretical hypotheses. Findings - The findings indicate that greater economic complexity has been associated with a higher level of services export diversification, and the magnitude of this positive effect is higher for high-income countries than for developing countries. Furthermore, the share of FDI inflows (in percentage of gross domestic product) matters for the effect of economic complexity on services export diversification. Specially, economic complexity exerts a higher positive effect on services export diversification, as the share of net FDI inflows in gross domestic product increases. Research limitations/implications - From a policy perspective, the analysis complements previous works on the effects of economic complexity (e.g. on economic growth, income inequality, poverty, etc.), by showing that economic complexity also matters for fostering the diversification of countries' services export items. Enhancing economic complexity should be at the heart of policymakers' agenda, both at the national and international levels, given its strong positive effect on macroeconomic aggregates, including on services export diversification, the latter being also an important engine for economic growth (Anandet al., 2012; Gnangnon, 2021a; Mishraet al., 2011; Stojkoskiet al., 2016). Practical implications - This study opens an avenue for future research on whether services export diversification influences economic complexity. One avenue for future research could also be to explore the effect of comparative advantage on goods and services (using the Balassa's revealed comparative advantage index) on services export diversification. Future works could also examine how economic complexity affects different categories of services sectors, including traditional services and modern services. Originality/value - To the best of the author’s knowledge, this study is the first to address this topic in the literature.

Suggested Citation

  • Sena Kimm Gnangnon, 2022. "Effect of economic complexity on services export diversification: do foreign direct investment inflows matter?," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 21(3), pages 413-437, June.
    • Handle: RePEc:eme:ijdipp:ijdi-01-2022-0023
    DOI: 10.1108/IJDI-01-2022-0023
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/IJDI-01-2022-0023/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/IJDI-01-2022-0023/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/IJDI-01-2022-0023?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mayer, T. & Mejean, I. & Nefussi, B., 2010. "The location of domestic and foreign production affiliates by French multinational firms," Journal of Urban Economics, Elsevier, vol. 68(2), pages 115-128, September.
    2. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
    3. Barry Eichengreen & Poonam Gupta, 2013. "Exports of services: Indian experience in perspective," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 6(1), pages 35-60, April.
    4. Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
    5. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    6. Sèna Kimm Gnangnon, 2021. "Services diversification and economic growth," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 18(1), pages 49-86, June.
    7. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8mcgcdbi is not listed on IDEAS
    8. Beata S. Javorcik & Alessia Lo Turco & Daniela Maggioni, 2018. "New and Improved: Does FDI Boost Production Complexity in Host Countries?," Economic Journal, Royal Economic Society, vol. 128(614), pages 2507-2537, September.
    9. Antonietti, Roberto & Franco, Chiara, 2021. "From FDI to economic complexity: a panel Granger causality analysis," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 225-239.
    10. Pegah Sadeghi & Hamid Shahrestani & Kambiz Hojabr Kiani & Taghi Torabi, 2020. "Economic complexity, human capital, and FDI attraction: A cross country analysis," International Economics, CEPII research center, issue 164, pages 168-182.
    11. Stephan Huber, 2018. "Product Sophistication and Spillovers from Foreign Direct Investment," Contributions to Economics, in: Product Characteristics in International Economics, chapter 0, pages 51-90, Springer.
    12. Manuel R. Agosin & Roberto Alvarez & Claudio Bravo‐Ortega, 2012. "Determinants of Export Diversification Around the World: 1962–2000," The World Economy, Wiley Blackwell, vol. 35(3), pages 295-315, March.
    13. Sebastián Bustos & Charles Gomez & Ricardo Hausmann & César A Hidalgo, 2012. "The Dynamics of Nestedness Predicts the Evolution of Industrial Ecosystems," PLOS ONE, Public Library of Science, vol. 7(11), pages 1-8, November.
    14. Viktor Stojkoski & Zoran Utkovski & Ljupco Kocarev, 2016. "The Impact of Services on Economic Complexity: Service Sophistication as Route for Economic Growth," PLOS ONE, Public Library of Science, vol. 11(8), pages 1-29, August.
    15. Stephen R. Bond, 2002. "Dynamic panel data models: a guide to micro data methods and practice," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 1(2), pages 141-162, August.
    16. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    17. Barry Eichengreen & Poonam Gupta, 2013. "Exports of services: Indian experience in perspective," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 6(1), pages 35-60, April.
    18. Gnangnon, Sèna Kimm, 2020. "Effect of the Internet on Services Export Diversification," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 35(3), pages 519-558.
    19. Saliola, Federica & Zanfei, Antonello, 2009. "Multinational firms, global value chains and the organization of knowledge transfer," Research Policy, Elsevier, vol. 38(2), pages 369-381, March.
    20. Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers 09/02, Institute for Fiscal Studies.
    21. Hartmann, Dominik & Guevara, Miguel R. & Jara-Figueroa, Cristian & Aristarán, Manuel & Hidalgo, César A., 2017. "Linking Economic Complexity, Institutions, and Income Inequality," World Development, Elsevier, vol. 93(C), pages 75-93.
    22. Su, Xiaoyan & Anwar, Sajid & Zhou, Ying & Tang, Xuan, 2020. "Services trade restrictiveness and manufacturing export sophistication," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    23. C. A. Hidalgo & B. Klinger & A. -L. Barabasi & R. Hausmann, 2007. "The Product Space Conditions the Development of Nations," Papers 0708.2090, arXiv.org.
    24. repec:hal:wpspec:info:hdl:2441/c8dmi8nm4pdjkuc9g8mcgcdbi is not listed on IDEAS
    25. Guido Caldarelli & Matthieu Cristelli & Andrea Gabrielli & Luciano Pietronero & Antonio Scala & Andrea Tacchella, 2012. "A Network Analysis of Countries’ Export Flows: Firm Grounds for the Building Blocks of the Economy," PLOS ONE, Public Library of Science, vol. 7(10), pages 1-11, October.
    26. Caitlin Allen Whitehead & Haroon Bhorat, 2021. "Understanding Economic Complexity: An Application to the MER Sector," Working Papers 202105, University of Cape Town, Development Policy Research Unit.
    27. Sèna Kimm Gnangnon, 2021. "Manufacturing Exports and Services Export Diversification," The International Trade Journal, Taylor & Francis Journals, vol. 35(3), pages 221-242, May.
    28. Sadhana Srivastava, 2006. "The Role Of Foreign Direct Investment In India'S Services Exports: An Empirical Investigation," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 51(02), pages 175-194.
    29. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December.
    30. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    31. Gnangnon, Sèna Kimm, 2020. "Effect of Poverty on Services Export Concentration in Developing Countries," EconStor Preprints 223178, ZBW - Leibniz Information Centre for Economics.
    32. Koi Nyen Wong & Tuck Cheong Tang & Dietrich Fausten, 2009. "Foreign Direct Investment and Services Trade: Evidence from Malaysia and Singapore," Global Economic Review, Taylor & Francis Journals, vol. 38(3), pages 265-276.
    33. Havranek, Tomas & Irsova, Zuzana, 2011. "Estimating vertical spillovers from FDI: Why results vary and what the true effect is," Journal of International Economics, Elsevier, vol. 85(2), pages 234-244.
    34. Sandra Poncet & Felipe Starosta, 2013. "Export upgrading and growth in China: the prerequisite of domestic embeddedness," Working Papers halshs-00960684, HAL.
    35. Bjørn Bo Sørensen & Christian Estmann & Enilde Sarmento & John Rand, 2020. "Economic complexity and structural transformation: the case of Mozambique," WIDER Working Paper Series wp-2020-141, World Institute for Development Economic Research (UNU-WIDER).
    36. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
    37. Pravakar Sahoo & Ranjan Kumar Dash, 2017. "What Drives India's Surge in Service Exports?," The World Economy, Wiley Blackwell, vol. 40(2), pages 439-461, February.
    38. Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    39. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    40. Koch, Philipp, 2021. "Economic complexity and growth: Can value-added exports better explain the link?," Economics Letters, Elsevier, vol. 198(C).
    41. repec:hal:pseose:halshs-00960684 is not listed on IDEAS
    42. Sèna Kimm Gnangnon & Shishir Priyadarshi, 2016. "Export Product Diversification, Services Production and Exports in Least Developed Countries," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-36, October.
    43. Sèna K. Gnangnon, 2021. "Aid for Trade and services export diversification in recipient countries," Australian Economic Papers, Wiley Blackwell, vol. 60(2), pages 189-225, June.
    44. Hausmann, Ricardo & Hidalgo, Cesar, 2014. "The Atlas of Economic Complexity: Mapping Paths to Prosperity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262525429, April.
    45. Li, Yunong & Yang, Mengkai & Zhu, Lianming, 2021. "FDI, Export Sophistication, and Quality Upgrading: Evidence from China's WTO Accession," Japan and the World Economy, Elsevier, vol. 59(C).
    46. Ricardo Hausmann & César Hidalgo, 2011. "The network structure of economic output," Journal of Economic Growth, Springer, vol. 16(4), pages 309-342, December.
    47. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    48. XU, Bin & LU, Jiangyong, 2009. "Foreign direct investment, processing trade, and the sophistication of China's exports," China Economic Review, Elsevier, vol. 20(3), pages 425-439, September.
    49. Zsolt Darvas, 2012. "Compositional effects on productivity, labour cost and export adjustments," Policy Contributions 730, Bruegel.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qiu, Guojing & Si, Deng-Kui & Hu, Debao & Li, Xinqi, 2023. "Banking deregulation and export product quality," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    2. Gnangnon, Sèna Kimm, 2024. "Effects of intellectual property rights protection on services export diversification in developing countries," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 46(1), pages 53-89.
    3. Honoré Tekam Oumbé & Ronald Djeunankan & Alain Mekia Ndzana, 2023. "Does information and communication technologies affect economic complexity?," SN Business & Economics, Springer, vol. 3(4), pages 1-25, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gnangnon, Sèna Kimm, 2022. "Effect of the utilization of non-reciprocal trade preferences offered by the QUAD countries on beneficiary countries' economic complexity," Journal of the Japanese and International Economies, Elsevier, vol. 65(C).
    2. Sèna Kimm Gnangnon, 2023. "Do unilateral trade preferences help reduce poverty in beneficiary countries?," International Journal of Economic Policy Studies, Springer, vol. 17(1), pages 249-288, February.
    3. Gnangnon, Sèna Kimm, 2021. "Do Unilateral Trade Preferences Help Reduce Poverty in Beneficiary Countries?," EconStor Preprints 247346, ZBW - Leibniz Information Centre for Economics.
    4. Gnangnon, Sèna Kimm, 2021. "Effect of the Utilization of Non-Reciprocal Trade Preferences offered by the QUAD on Economic Growth in Beneficiary Countries," EconStor Preprints 242848, ZBW - Leibniz Information Centre for Economics.
    5. Gnangnon, Sèna Kimm, 2022. "Effect of the Duration of the Membership in GATT/WTO on Commercial Services Exports in Developing Countries," EconStor Preprints 262167, ZBW - Leibniz Information Centre for Economics.
    6. Gnangnon, Sèna Kimm, 2020. "Effect of Poverty on Services Export Concentration in Developing Countries," EconStor Preprints 223178, ZBW - Leibniz Information Centre for Economics.
    7. Gnangnon, Sèna Kimm, 2021. "Effect of Multilateral Trade Liberalization on Services Export Diversification," EconStor Preprints 229152, ZBW - Leibniz Information Centre for Economics.
    8. Antonis Adam & Antonios Garas & Marina-Selini Katsaiti & Athanasios Lapatinas, 2023. "Economic complexity and jobs: an empirical analysis," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 32(1), pages 25-52, January.
    9. Gnangnon, Sèna Kimm & Iyer, Harish, 2021. "Effect of Aid for Trade and Foreign Direct Investment Inflows on the Utilization of Unilateral Trade Preferences offered by the QUAD countries," EconStor Preprints 238211, ZBW - Leibniz Information Centre for Economics.
    10. Trung V. Vu, 2022. "Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities," Empirical Economics, Springer, vol. 63(3), pages 1571-1604, September.
    11. Avom, Désiré & Keneck-Massil, Joseph & Njangang, Henri & Nvuh-Njoya, Youssouf, 2022. "Why are some resource-rich countries more sophisticated than others? The role of the regime type and political ideology," Resources Policy, Elsevier, vol. 79(C).
    12. Dang Luu Hai, 2021. "Aid for trade and export sophistication in recipient countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 30(4), pages 530-548, May.
    13. Gnangnon, Sèna Kimm, 2023. "Effects of the Utilization of Non-Reciprocal Trade Preferences Offered by QUAD Countries on Economic Growth in Beneficiary Countries," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 45(1), pages 33-68.
    14. Jérôme Valette, 2018. "Do Migrants Transfer Productive Knowledge Back to Their Origin Countries?," Journal of Development Studies, Taylor & Francis Journals, vol. 54(9), pages 1637-1656, September.
    15. Kang-Kook Lee & Trung V. Vu, 2020. "Economic complexity, human capital and income inequality: a cross-country analysis," The Japanese Economic Review, Springer, vol. 71(4), pages 695-718, October.
    16. Gnangnon, Sèna Kimm, 2023. "Effect of the Utilization of Non-Reciprocal Trade Preferences on Trade Policy in Beneficiary Countries," EconStor Preprints 279825, ZBW - Leibniz Information Centre for Economics.
    17. Isaac Ketu & Arsene Mouongue Kelly & Jules-Eric Tchapchet Tchouto, 2024. "Does economic complexity reduce the size of the shadow economy in African countries?," SN Business & Economics, Springer, vol. 4(1), pages 1-27, January.
    18. Yeung, Hak & Huber, Jürgen, 2024. "Has China's belt and road initiative positively impacted the economic complexity of host countries? Empirical evidence," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 246-258.
    19. Naima Chrid & Sami Saafi & Mohamed Chakroun, 2021. "Export Upgrading and Economic Growth: a Panel Cointegration and Causality Analysis," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(2), pages 811-841, June.
    20. Sèna K. Gnangnon, 2021. "Aid for Trade and services export diversification in recipient countries," Australian Economic Papers, Wiley Blackwell, vol. 60(2), pages 189-225, June.

    More about this item

    Keywords

    Economic complexity; Foreign direct investment inflows; Services export diversification; D2; O14; F14;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:ijdipp:ijdi-01-2022-0023. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.