THE EFFECT OF ECONOMIC COMPLEXITY ON INCLUSIVE GROWTH IN DEVELOPING COUNTRIES

Abstract

This study examines the effect of economic complexity on inclusive growth from 2000 to 2021 based on a sample of 68 developing countries. Applying the two-stage least squares approach (Lewbel method), we find that economic complexity has a significantly positive effect on inclusive growth. This result is robust with quantile, Tobit, Poisson, and negative binomial methods, applied per continent. Our results challenge the conventional focus on economic growth as the sole policy objective and highlight the importance of considering the quality and distribution of growth. Specifically, the findings suggest that countries with a more complex economic structure tend to experience higher levels of inclusive growth, emphasising the need for policies that foster economic diversification and sophistication. Additionally, factors such as government spending, taxation, and public debt are identified as key determinants that can either support or hinder inclusive growth in developing countries. This study contributes to the ongoing debate on inclusive growth and provides valuable insights for policymakers promoting sustainable and equitable development strategies in developing countries.