Quantifying Subnational Economic Complexity: Evidence from Romania

Abstract

Over the last two decades, Romania has undergone strong economic growth, catching up to advanced economies and producing one of the best economic performances in the world. Along with these positive changes, industrial product diversification has increased through expanded foreign economic relations, with all of these supporting the complexity of economic activities. Even though there is a world ranking of countries showing the highest level of economic complexity, there is no information about regional contributions to the overall score in Romania. This paper fills this gap by measuring the economic complexity of Romania’s subnational areas (counties) in the last ten years. To calculate the Economic Complexity Index (ECI) at a regional level, 615 economic activities (four-digit classes according to the NACE classification) were taken into consideration, grouped into 68 cluster categories. The results show that significant changes in economic complexity have mainly occurred in less developed areas, the upper- and middle-ranked counties’ positions being relatively stable. Furthermore, we examined the impact of complexity on growth and convergence, finding that the ECI index is a good predictor both for future economic growth as well as for the evolution of income inequalities.