Economic complexity and productivity polarization: Evidence from Italian provinces

In this paper, we analyze the role of economic complexity as a driver of regional labor productivity growth in Italy. The Economic Complexity Index (ECI) measures the multiplicity of knowledge embedded in an economy's productive structure and can be interpreted as an indicator of "qualified diversity". We assess the impact of ECI on the distribution dynamics of labor productivity by combining growth regression analysis with conditional density estimates. Counterfactual analysis results suggest that ECI plays a key role in the observed tendency to polarization of regional labor productivity. We also provide evidence of a long-run relationship between labor productivity and ECI by using a panel cointegration analysis.