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Improving economic complexity index: Insights from value added

Author

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  • Zhang, Lulu
  • Chen, Weiming
  • Zhang, Qian
  • You, Kairui
  • Diao, Gang

Abstract

Accurate measurement of the economic complexity index is crucial for guiding economic growth. However, the economic complexity index can be misestimated as it relies on export data with multiple value-added sources, which fails to accurately capture a country's production capability in specific activities. Thus, based on the input-output model, this study decomposes the export value of a product into three parts: foreign value added, value added from the domestic product sector, and value added from other domestic product sectors. Using the second component, this study subsequently evaluates the economic complexity of 43 countries in the Exiobase database. The effectiveness of this new measure in capturing information related to factors influencing national economic performance is further explored. The results show that, compared to the economic complexity index, the overall deviation between rankings based on the new measure and GDP per capita rankings is significantly smaller. By capturing additional information on a country's position in the global value chain, this new measure serves as a more effective tool for explaining differences in national economic development levels and forecasting economic growth.

Suggested Citation

  • Zhang, Lulu & Chen, Weiming & Zhang, Qian & You, Kairui & Diao, Gang, 2025. "Improving economic complexity index: Insights from value added," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 1391-1408.
    • Handle: RePEc:eee:ecanpo:v:85:y:2025:i:c:p:1391-1408
    DOI: 10.1016/j.eap.2025.01.029
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