Exploring the nexus between exports’ economic complexity and institutional quality: insights from Italian provinces

The present research aims to investigate the determinants of economic development and productivity by proposing an empirical analysis of the economic effects of institutional quality on the economic complexity of export at the intra-national level, focusing on 103 Italian provinces from 2004 to 2016. Using the System Generalised Method of Moments (System-GMM) estimator, the study assesses the influence of various institutional dimensions on provincial economic complexity, as measured by the Economic Complexity Index (ECI). The findings indicate that institutional quality, particularly rule of law, regulatory quality, and voice and accountability, significantly enhances economic complexity. Better formal and informal institutions such as completeness of contracts, social cohesion, contract enforcement, by reducing transaction costs and uncertainty, and by favouring knowledge dissemination and security of investments, are source of comparative advantage in complex industries that lead to diversified and sophisticated production, fostering economic growth and innovation. Moreover, the study emphasises the importance of related activities, which interact with institutions to support complex and innovative export-related activities through knowledge spillovers and related diversification. The analysis also highlights the pivotal role of human capital, social capital, and innovation, which should remain focal points for policymakers.