Economic complexity and environmental performance: Evidence from a world sample

This paper analyzes the relationship between economic complexity and environmental performance using annual data on 88 developed and developing countries for the period of 2002-2012. We use the Economic Complexity Index, highlighting that a country’s productive structure is associated with the amount of knowledge and know-how embodied in the goods it produces. Measuring environmental performance through the Environmental Performance Index, we show that moving to higher levels of economic complexity leads to better environmental performance and therefore, that product sophistication does not induce environmental degradation. Nevertheless, the effect of economic complexity on air quality is negative, i.e., exposure to PM2.5 and CO2 emissions increases. These findings remain robust across alternative econometric specifications. Furthermore, we highlight the link between the complexity of products and environmental performance at the micro-level. We build two product-level indexes that link a product to the average level of (a) environmental performance and (b) air pollution (CO2 emissions) in the countries that export it. With these indexes, we illustrate how the development of more sophisticated products is associated with changes in environmental quality and show that the complexity of an economy captures information about the country’s level of pollution.