The influence of country risks on economic complexity: examining the role of open economy strategies

Subject Areas : Industrial Economics

Hussein Alaa Jaafar ¹ , Samad Hekmati Farid ^{2 *} , Yousef Mohammadzadeh ³

1 - PHD student of Economics, Faculty of Economics and Management, Urmia University, Urmia, Iran, [e-mail]
2 - Associate Professor of Economics, Faculty of Economics and Management, Urmia University, Urmia, Iran, (Crossponding Authur), [e-mail]
3 - Associate Professor of Economics, Faculty of Economics and Management, Urmia University, Urmia, Iran, [e-mail]

Received: 2024-08-22 Accepted : 2024-11-14 Published : 2024-11-19

Keywords: Economic Complexity, Country Risks, Open Economy Strategy, PSTR Approach JEL Classification: D24, M10, O14, P33,

Abstract :

This paper examines the impact of country risks on economic complexity and the moderating role of economic openness, using a Panel Smooth Transition Regression (PSTR) approach on a sample of 47 emerging countries from 2007 to 2021. To enhance the robustness of results, country risks assesse through separate models. Country risk encompasses the economic, social, and political conditions in a foreign country that may adversely affect financial institutions' operations. The PSTR approach in this study uncovers new evidence on the asymmetric effects of country risks and economic complexity across countries with varying levels of trade openness. Results indicate that financial, economic, and political risks negatively affect economic complexity, with a stronger effect observed in highly open economies. Additionally, information and communication technology, control of corruption, social capital, and foreign direct investment positively influence economic complexity. However, government expenditure and population density show varied effects on economic complexity depending on a country's trade openness level. Policy recommendations include managing country risks, advancing information and communication technology, bolstering social capital, attracting foreign investment, controlling corruption, and fostering free trade to enhance economic complexity

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