IS ECONOMIC COMPLEXITY SPATIALLY DEPENDENT? A SPATIAL ANALYSIS OF INTERACTIONS OF ECONOMIC COMPLEXITY BETWEEN MUNICIPALITIES IN BRAZIL

Abstract

Even though the world economy has developed over the past century, the divergence has simultaneously led to an increasingly unequal dispersion of wealth. Economists have been fascinated by the underlying mechanisms and determinants; many potential sources of economic development have been scrutinized. Recently, a new theory of economic development has emerged (Hidalgo et al, 2007). Economic complexity emphasizes the importance of the productive structure and disentangles aggregated measures of economic development such as GDP. Whilst it has been applied in explaining growth at the national level with significant results, it has only been sparsely used to explain interregional differences and subnational development. Brazil is infamous for its staggering social and economic regional inequality. This paper applies spatial econometrics to assess whether economic complexity is spatially dependent between Brazilian municipalities in 2010 and evaluates what implications this may have for regional industrial policies. As such it is part of both the diversification versus specialization and of the place-neutral and place-based policy debates. It finds strongly significant and robust evidence of spatial dependence using a series of models and spatial weight matrices at the municipal level.