Complexity-based diversification strategies: a new method for ranking promising activities for regional diversification

Following the increasing upsurge in works using economic complexity to devise smart diversification strategies, this paper proposes a new complexity-based method to be used by policymakers to rank promising activities for short, medium and long-term diversification. After reporting the positive impact of regional complexity on employment and gross domestic product (GDP) per capita growth for Brazilian regions, the paper assesses the potential of the smart diversification score (SDS) to increase regional complexity. Looking backwards, the paper finds that SDS can predict up to 39.4% of the diversification of 1033 Brazilian cities that have increased complexity between 2007 and 2018. Looking forward, the paper calculates the SDS for the city of Belo Horizonte, suggesting a portfolio of related and unrelated activities, finding high potential gains to be obtained following alternative paths.