Export complexity, industrial complexity and regional economic growth in Brazil

TL;DR

This study investigates how export and industrial complexity influence regional economic growth in Brazil, revealing that industrial complexity and regional spillovers are more predictive of growth than export complexity.

Contribution

It provides a detailed analysis of regional complexities in Brazil, highlighting the importance of industrial complexity over export complexity for growth in a large emerging economy.

Findings

Industrial complexity predicts 3-year growth prospects.

Export complexity is less associated with regional growth.

Regional spillovers significantly influence economic growth.

Abstract

Research on productive structures has shown that economic complexity conditions economic growth. However, little is known about which type of complexity, e.g., export or industrial complexity, matters more for regional economic growth in a large emerging country like Brazil. Brazil exports natural resources and agricultural goods, but a large share of the employment derives from services, non-tradables, and within-country manufacturing trade. Here, we use a large dataset on Brazil's formal labor market, including approximately 100 million workers and 581 industries, to reveal the patterns of export complexity, industrial complexity, and economic growth of 558 micro-regions between 2003 and 2019. Our results show that export complexity is more evenly spread than industrial complexity. Only a few -- mainly developed urban places -- have comparative advantages in sophisticated services. Regressions show that a region's industrial complexity is a significant predictor for 3-year growth prospects, but export complexity is not. Moreover, economic complexity in neighboring regions is significantly associated with economic growth. The results show export complexity does not appropriately depict Brazil's knowledge base and growth opportunities. Instead, promoting the sophistication of the heterogeneous regional industrial structures and development spillovers is a key to growth.