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The Effect of Economic Complexity on Innovation and Human Development

In: Proceedings of the Global Conference on Economic Diversification 2024

Author

Listed:
  • Sana Hameed Pasha

    (NUST, CePwS)

  • Muhammad Ali

    (NUST, Department of Economics)

Abstract

This chapter examines the effect of economic complexity on innovation in 114 countries using the data for the period 1998–2019. It also analyzes whether economic complexity affects human development directly or through innovation by using the fitted values of innovation that are obtained after estimating the effect of economic complexity on innovation. The Two-Step System Generalized Method of Moments (GMM) technique is used to estimate the regression equations. Results reveal that economic complexity has a positive and significant relationship with innovation, such that high level of complexity paves the way for the achievement of high level of innovation. Another estimation is conducted to analyze whether economic complexity affects human development directly or through innovation. The results show that economic complexity has a more pronounced effect on human development through innovation as compared to the effect of economic complexity on its own. To account for the differences between the economies of the countries chosen, all the countries are classified into two categories, that is, developing and developed. The estimations are then conducted separately for each category, and it is observed that the effect of economic complexity through innovation is more pronounced as compared to that of the direct effect of economic complexity on human development in both developing and developed countries. Our estimation results imply that countries should adopt policies according to their level of complexity and promote innovation by switching towards efficient technologies that augment human skills and capabilities.

Suggested Citation

  • Sana Hameed Pasha & Muhammad Ali, 2026. "The Effect of Economic Complexity on Innovation and Human Development," Springer Proceedings in Business and Economics, in: Keertana Subramani & Hamid Saeed & Fadi Salem (ed.), Proceedings of the Global Conference on Economic Diversification 2024, chapter 0, pages 207-230, Springer.
    • Handle: RePEc:spr:prbchp:978-981-95-2022-0_10
    DOI: 10.1007/978-981-95-2022-0_10
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