Multidimensional Economic Complexity and Fiscal Crises

Recent
studies highlight economic complexity’s role in mitigating fiscal crises, often
measured via an economy’s trade structure. Trade, however, is just one facet of
an economy’s structure and omits critical innovative activities like research.
Here, we investigate how a multidimensional approach to economic
complexity—including both trade and research structures—relates to fiscal
instability. By using data on over 230 national fiscal crises from 1995 to 2021
and hazard duration analysis, we assess how measures of trade and research
complexity combine to explain crisis likelihood. We find that the interaction
of complexity dimensions significantly reduces crisis probability, whereas
individual indexes alone are not robust predictors. This suggests that economies
focusing on a single dimension may be more vulnerable, thus highlighting the
importance of balanced development across multiple areas. These findings offer
valuable insights for policymakers aiming to enhance economic resilience and
mitigate fiscal risks.