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Journal of Economic Integration 2021 December;36(4) :626-688.
Effect of Productive Capacities on Economic Complexity: Do Aid for Trade Flows Matter?

Sèna Kimm Gnangnon 

World Trade Organization, Switzerland
Corresponding Author: Sèna Kimm Gnangnon ,Email:
Copyright ©2021 Journal of Economic Integration
This is the first study to examine the effect of productive capacities on economic complexity and understand whether the Aid for Trade (AfT) flows is important for this effect in recipient countries. The analysis uses a sample of 126 developed and developing countries for 2002-2018 and adopts the two-step system Generalized Method of Moments approach. Results show that strengthening productive capacities enhances economic complexity. Furthermore, productive capacities and total AfT flows are strongly complementary in positively affecting economic complexity, and the degree of complementarity is higher for poor countries than for other AfT-recipient countries. Similarly, productive capacities are strongly complementary with total Non-AfT flows, as well as for total development aid. These findings highlight the need for scaling-up development aid flows, notably AfT flows, in favor of developing countries and poor countries having the lowest levels of productive capacities.

JEL Classification
D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
O1: Economic Development
F35: Foreign Aid
Keywords: Productive Capacities | Economic Complexity | Aid for Trade Flows | Other Development Aid (i.e. | Non-AfT Flows) | Total Development Aid
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