IDEAS home Printed from https://ideas.repec.org/a/kap/atlecj/v49y2021i3d10.1007_s11293-021-09727-0.html
   My bibliography  Save this article

Economic Complexity and Inflation: An Empirical Analysis

Author

Listed:
  • Fahim Al Marhubi

    (Sultan Qaboos University)

Abstract

This study examines the relationship between inflation and economic complexity, the set of productive capabilities and know-how embedded in the structure of an economy. It posits that economic complexity, by providing the economy with the ability to reduce macroeconomic shocks, is associated with lower inflation. Economic complexity is inferred from the overall sophistication and mix of a country’s exports. Complex economies are highly diversified and export a large number of less ubiquitous products. Using a sample of 94 countries for the period 1970 to 2014, the impact of economic complexity on inflation is estimated using the Arellano and Bond generalized method of moments estimation procedure. The empirical results show that economic complexity has a negative causal impact on inflation. This effect is statistically significant, quantitatively large, and robust. From a policy perspective, the findings suggest that development driven by economic diversification, a critical component of economic complexity, rather than export specialization, is more likely to promote low inflation, a crucial objective of macroeconomic policy.

Suggested Citation

  • Fahim Al Marhubi, 2021. "Economic Complexity and Inflation: An Empirical Analysis," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 49(3), pages 259-271, September.
    • Handle: RePEc:kap:atlecj:v:49:y:2021:i:3:d:10.1007_s11293-021-09727-0
    DOI: 10.1007/s11293-021-09727-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11293-021-09727-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11293-021-09727-0?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. Lee, Dongyeol & Zhang, Huan, 2022. "Export diversification in low-income countries and small states: Do country size and income level matter?," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 250-265.
    2. Albanesi, Stefania, 2007. "Inflation and inequality," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1088-1114, May.
    3. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
    4. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-112.
    5. Dany Bahar & Hillel Rapoport & Riccardo Turati, 2019. "Does Birthplace Diversity Affect Economic Complexity? Cross-Country Evidence," CESifo Working Paper Series 7950, CESifo.
    6. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    7. Jongrim Ha & M. Ayhan Kose & Franziska Ohnsorge, 2019. "Inflation in Emerging and Developing Economies," World Bank Publications - Books, The World Bank Group, number 30657.
    8. Rodrik, Dani, 1999. "Where Did All the Growth Go? External Shocks, Social Conflict, and Growth Collapses," Journal of Economic Growth, Springer, vol. 4(4), pages 385-412, December.
    9. Chris Papageorgiou & Nikola Spatafora, 2012. "Economic Diversification in LICs; Stylized Facts and Macroeconomic Implications," IMF Staff Discussion Notes 12/13, International Monetary Fund.
    10. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
    11. Keneck-Massil, Joseph & Nvuh-Njoya, Youssouf, 2021. "Did colonisation matter for comparative economic complexity?," Economics Letters, Elsevier, vol. 203(C).
    12. Krishna, Pravin & Levchenko, Andrei A., 2013. "Comparative advantage, complexity, and volatility," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 314-329.
    13. Ha,Jongrim & Kose,Ayhan & Ohnsorge,Franziska Lieselotte, 2019. "Understanding Inflation in Emerging and Developing Economies," Policy Research Working Paper Series 8761, The World Bank.
    14. David Romer, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 869-903.
    15. 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.
    16. Sweet, Cassandra & Eterovic, Dalibor, 2019. "Do patent rights matter? 40 years of innovation, complexity and productivity," World Development, Elsevier, vol. 115(C), pages 78-93.
    17. Heitor Almeida & Daniel Ferreira, 2002. "Democracy and the Variability of Economic Performance," Economics and Politics, Wiley Blackwell, vol. 14(3), pages 225-257, November.
    18. Rafael Portillo & Luis-Felipe Zanna & Stephen O’Connell & Richard Peck, 2016. "Implications of food subsistence for monetary policy and inflation," Oxford Economic Papers, Oxford University Press, vol. 68(3), pages 782-810.
    19. Mr. Chris Papageorgiou & Mr. Nikola Spatafora, 2012. "Economic Diversification in LICs: Stylized Facts and Macroeconomic Implications," IMF Staff Discussion Notes 2012/013, International Monetary Fund.
    20. Sven-Olov Daunfeldt & Jörgen Hellström & Mats Landström, 2013. "Why Do Politicians Implement Central Bank Independence Reforms?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 41(4), pages 427-438, December.
    21. Bahar, Dany & Rapoport, Hillel & Turati, Riccardo, 2022. "Birthplace diversity and economic complexity: Cross-country evidence," Research Policy, Elsevier, vol. 51(8).
    22. Peter Kannen, 2020. "Does foreign direct investment expand the capability set in the host economy? A sectoral analysis," The World Economy, Wiley Blackwell, vol. 43(2), pages 428-457, February.
    23. Lapatinas, Athanasios, 2019. "The effect of the Internet on economic sophistication: An empirical analysis," Economics Letters, Elsevier, vol. 174(C), pages 35-38.
    24. Miklós Koren & Silvana Tenreyro, 2013. "Technological Diversification," American Economic Review, American Economic Association, vol. 103(1), pages 378-414, February.
    25. 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, December.
    26. Mona Haddad & Jamus Jerome Lim & Cosimo Pancaro & Christian Saborowski, 2013. "Trade openness reduces growth volatility when countries are well diversified," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(2), pages 765-790, May.
    27. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
    28. Ana Carolina Garriga, 2016. "Central Bank Independence in the World: A New Data Set," International Interactions, Taylor & Francis Journals, vol. 42(5), pages 849-868, October.
    29. 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.
    30. Malik, Adeel & Temple, Jonathan R.W., 2009. "The geography of output volatility," Journal of Development Economics, Elsevier, vol. 90(2), pages 163-178, November.
    31. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    32. Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
    33. Tang, Sam Hak Kan & Groenewold, Nicolaas & Leung, Charles Ka Yui, 2008. "The link between institutions, technical change and macroeconomic volatility," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1520-1549, December.
    34. Christian Henn & Mr. Chris Papageorgiou & Mr. Nikola Spatafora, 2013. "Export Quality in Developing Countries," IMF Working Papers 2013/108, International Monetary Fund.
    35. 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.
    36. Joseph Keneck-Massil & Youssouf Nvuh-Njoya, 2021. "Did colonisation matter for comparative economic complexity?," Post-Print hal-03287353, HAL.
    37. Binder, Carola, 2019. "Inequality and the inflation tax," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    38. Brendan Brown, 2016. "The Global 2 % Inflation Standard – How Will it End?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 44(2), pages 183-196, June.
    39. Saleh Albeaik & Mary Kaltenberg & Mansour Alsaleh & Cesar A. Hidalgo, 2017. "Improving the Economic Complexity Index," Papers 1707.05826, arXiv.org, revised Jul 2017.
    40. Athanasios Lapatinas & Anastasia Litina, 2019. "Intelligence and economic sophistication," Empirical Economics, Springer, vol. 57(5), pages 1731-1750, November.
    41. Nurbayev, Daniyar, 2018. "The rule of law, central bank independence and price stability," Journal of Institutional Economics, Cambridge University Press, vol. 14(4), pages 659-687, August.
    42. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    43. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    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. Sudeshna Ghosh & Buhari Doğan & Muhlis Can & Muhammad Ibrahim Shah & Nicholas Apergis, 2023. "Does economic structure matter for income inequality?," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(3), pages 2507-2527, June.

    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. Kamguia, Brice & Tadadjeu, Sosson & Miamo, Clovis & Njangang, Henri, 2022. "Does foreign aid impede economic complexity in developing countries?," International Economics, Elsevier, vol. 169(C), pages 71-88.
    2. 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).
    3. Fahim Marhubi, 2023. "Impact of Gender Discrimination Laws on Inflation: Evidence from Panel Data," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 29(3), pages 99-109, August.
    4. Nguyen, Canh Phuc, 2022. "Does economic complexity matter for the shadow economy?," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 210-227.
    5. 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.
    6. Valentine Soumtang Bime & Dieudonné Mignamissi & Agathe Cassandra Koumis Ngagni, 2024. "Does financial openness matter for economic transformation in sub-Saharan Africa?," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-49, April.
    7. Brice Kamguia & Joseph Keneck‐Massil & Henri Njangang & Sosson Tadadjeu, 2024. "Sophistication gap between countries: The effect of research and development expenditure," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(3), pages 739-778, July.
    8. 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.
    9. Nguyen, Canh Phuc, 2021. "Gender equality and economic complexity," Economic Systems, Elsevier, vol. 45(4).
    10. Keneck-Massil, Joseph & Nvuh-Njoya, Youssouf, 2021. "Did colonisation matter for comparative economic complexity?," Economics Letters, Elsevier, vol. 203(C).
    11. Henri Njangang & Youssouf Nvuh-Njoya, 2023. "Unravelling the link between democracy and economic complexity: fresh evidence from the Varieties of Democracy data," SN Business & Economics, Springer, vol. 3(3), pages 1-32, March.
    12. Nguyen, Canh Phuc & Su, Thanh Dinh, 2021. "Economic integration and economic complexity: The role of basic resources in absorptive capability in 40 selected developing countries," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 609-625.
    13. Serhan Cevik & Tianle Zhu, 2020. "Trinity Strikes Back: Monetary Independence And Inflation In The Caribbean," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(3), pages 375-388, April.
    14. Calderon,Cesar & Cantu Canales,Martha Catalina & Zeufack,Albert G., 2020. "Trade Integration, Export Patterns, and Growth in Sub-Saharan Africa," Policy Research Working Paper Series 9132, The World Bank.
    15. Gnangnon, Sèna Kimm, 2020. "Aid for Trade flows and Poverty Reduction in Recipient-Countries," EconStor Preprints 213807, ZBW - Leibniz Information Centre for Economics.
    16. Canh Phuc Nguyen & Thanh Dinh Su, 2021. "Financing the economy: The multidimensional influences of financial development on economic complexity," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(4), pages 644-684, May.
    17. Barbaros Güneri & A. Yasemin Yalta, 2021. "Does economic complexity reduce output volatility in developing countries?," Bulletin of Economic Research, Wiley Blackwell, vol. 73(3), pages 411-431, July.
    18. Isaac Ketu & Paul Ningaye, 2024. "Sectoral Employment Shares Shape Economic Complexity: Empirical Evidence from African Countries," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 16(2), pages 168-187, May.
    19. Trung V. Vu, 2022. "Linking LGBT inclusion and national innovative capacity," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 159(1), pages 191-214, January.
    20. Balavac, Merima & Pugh, Geoff, 2016. "The link between trade openness, export diversification, institutions and output volatility in transition countries," Economic Systems, Elsevier, vol. 40(2), pages 273-287.

    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:kap:atlecj:v:49:y:2021:i:3:d:10.1007_s11293-021-09727-0. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.