Does institutional quality foster economic complexity?
Vu, Trung V.
This paper examines the extent to which the quality of institutions, measured by the Economic Freedom of the World index, helps shape cross-country differences in economic complexity. To this end, I employ the intensity of ultraviolet radiation (UV-R) to isolate an exogenous source of variation in institutions, which helps circumvent endogeneity concerns. Empirical results indicate that the exogenous component of institutional quality exerts a strong and robust positive effect on economic complexity. The findings prevail after performing a battery of robustness tests. Furthermore, I find that institutions affect economic complexity by inducing human capital accumulation and providing incentives for innovative activities.
Publisher: University of Otago
Series number: 1909
Keywords: Economic Complexity; Economic Freedom; Institutions; Capabilities; Productive Structures
Research Type: Discussion Paper
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