Economic complexity and i̇ts effect on economic growth: evidence from Turkey

With the globalization process that emerged in the 1980s, countries abandoned import substitution policies and started to adopt free trade and open policies. Thus, the foreign trade structures of the economies have entered a transformation process and competition has moved to a global dimension. This has led to an increase in the need for high technology product exports, product diversity and high skill level of the economies over time, and thus the process has resulted in the emergence of relatively more complex economies. In the literature, various methodologies and methods have been developed in order to analyze the dynamics of this complex structure and to measure it numerically; studies dealing with the economic and socioeconomic consequences of economic complexity have gained momentum. The economic complexity index (ECI), which was developed by Hidalgo and Hausmann (2009) and which is the main tool of this study, is one of the methods frequently used for this purpose in the literature. ECI varies depending on the knowledge, skill content of the products produced by the country and the diversity of the products produced. Therefore, the effect of ECI on long-term economic growth has been one of the most discussed topics in the empirical and theoretical literature. Although hypotheses regarding the positive effect of economic complexity on economic growth have been popular in the empirical literature, it can be stated that studies on individual countries are quite limited. As a matter of fact, the economic dynamics, transformation process, natural resource richness, institutional, social and physical infrastructure and absorptive capacity of each country are quite different from each other. Therefore, it can be expected that the studies to be carried out on this direction would contribute to the literature. In line with these arguments, this study, attempts to determine the effect of economic complexity on economic growth in Turkey using time series data for the period 1995 – 2019. For this purpose; we use autoregressive distributed lag (ARDL) bounds testing approach to determine the cointegration relationships between real GDP, real domestic investment, total labor force and ECI developed for measuring economic complexity, and to determine the effect of ECI on economic growth. On the other hand, the simultaneous causality relationships between the aforementioned variables were tried to be determined by means of directed acyclic graphs (DAGs). The empirical findings confirm the positive effect of economic complexity on economic growth in Turkey as of the period examined. According to the results of the causality analysis, there is a one-way causality relationship from economic growth to economic complexity.