Can Personal Freedom Drive Economic Complexity?

ABSTRACT Research on economic complexity has identified various factors that enable countries to achieve higher levels of productive sophistication. However, the role of personal freedom as a distinct driver has been overlooked. This paper argues that by providing the necessary environment for individuals to explore new ideas, be creative and challenge the status quo, personal freedom is essential to the development of unique and complex products. This hypothesis is tested using a panel of 139 countries over the 1998–2022 period and employing panel corrected standard error and system‐GMM estimators to account for cross‐sectional dependence, serial correlation, and potential endogeneity. Our empirical analysis provides robust evidence that personal freedom is a significant booster of economic complexity. This evidence is more prominent in developing and emerging countries and is largely driven by core civil liberties, rule of law, and property rights. The results emphasize that fostering an environment of personal liberty is a fundamental determinant of long‐run economic sophistication and development.