Examining economic complexity as a holistic innovation system effect

The relationship between entrepreneurship and economic growth has remained somewhat contentious. While it is almost universally acknowledged that entrepreneurship and particularly knowledge-intensive entrepreneurship has apparent and important links to economic growth, studies to elaborate exactly how each of these factors influences economic growth return inconsistent findings. However, the measure of economic growth we suggest is too broad as an outcome metric to account for the sector of the economy that most directly contributes to the dynamics of economic growth. In this paper, we take a more nuanced approach to consider in what way and whether increasing economic complexity is related to the efficiency with which a country produces growth. We argue from a holistic innovation system (HIS) perspective that the combination of both knowledge-intensive and broader market–led business innovation will more rapidly improve the productivity levels of nations by utilising the diversity of knowledge and business resources available to that country. To test this hypothesis, we employ a dynamic version of the two-stage data envelopment analysis. We conclude that the increased economic diversity measured by the change in economic complexity can be treated as a much more refined outcome effect of a country’s HIS.