Strengthening complexity in EU: the role of educational policy and R&D spending

The drivers of economic complexity in the countries of the European Union (EU) are a question of significant importance, especially in the context of the emergence of a trade war. Studying the relationship between economic complexity and macroeconomic, educational and technological variables, we offer valuable conclusions for the design and formulation of new policies. The Economic Complexity Index (ECI) is analysed in the context of education expenditure, gross fixed capital formation, fiscal balance, R&D expenditure, and patent applications, using relevant econometric techniques such as the 3SLS and the SURE analysis. Education expenditures are found to affect significantly the Economic Complexity of a country. Moreover, after the outburst of the sovereign-debt crisis the fiscal balance has become a prerequisite for all European countries, showing a positive relationship with economic complexity. This result poses the question of how weaker economies can finance the necessary policies to increase their economic complexity, such as raising spending on education, R&D, and fixed capital investment, while maintaining fiscal stability.