Does Economic Complexity Promote Inclusive Green Growth in Developing Economies?

Abstract

Although economic complexity (ECI) is closely linked to structural transformation, its implications for inclusive green growth (IGG) remain underexplored, particularly in Sub-Saharan Africa (SSA). Notably, there is a knowledge gap on how progress in ECI affects IGG. Second, there is a policy gap concerning how progress in energy equity conditions the impact of ECI on IGG. We address these gaps by employing cross-country data from 35 SSA countries for the period 2010–2020. Findings from instrumental-variable regression analysis indicate that ECI does not promote IGG. Particularly, we find that although ECI promotes economic growth, it comes at the expense of income equity and environmental sustainability. The contingency analysis also demonstrates that while improving energy equity amplifies (mitigates) the growth effect (inequality downside) of ECI, it exacerbates the environmental cost. These findings underscore the need for policymakers to design complementary and compensatory policy mechanisms that ensure SSA's drive toward economic complexity translates into greener and more inclusive growth.