The Impact of Services on Economic Complexity: Service Sophistication as Route for Economic Growth

TL;DR

This paper demonstrates that services significantly influence economic complexity and growth, showing that diversified and sophisticated service sectors can serve as new pathways for economic development across countries.

Contribution

It introduces a novel analysis of services' role in economic complexity, highlighting their higher complexity indices and impact on growth, expanding beyond traditional goods-focused models.

Findings

Services have higher complexity indices than goods.

Countries with developed service sectors rank higher in economic complexity.

Diversification and sophistication of service exports promote economic growth.

Abstract

Economic complexity reflects the amount of knowledge that is embedded in the productive structure of an economy. By combining tools from network science and econometrics, a robust and stable relationship between a country's productive structure and its economic growth has been established. Here we report that not only goods but also services are important for predicting the rate at which countries will grow. By adopting a terminology which classifies manufactured goods and delivered services as products, we investigate the influence of services on the country's productive structure. In particular, we provide evidence that complexity indices for services are in general higher than those for goods, which is reflected in a general tendency to rank countries with developed service sector higher than countries with economy centred on manufacturing of goods. By focusing on country dynamics based on experimental data, we investigate the impact of services on the economic complexity of countries measured in the product space (consisting of both goods and services). Importantly, we show that diversification of service exports and its sophistication can provide an additional route for economic growth in both developing and developed countries.