Is Spain’s economic complexity exposed to international trade and politics?

This was a class project in which I decided to combine notions from Economics and Geopolitics. The main goal was to infer how Spain’s trade alliances affected the Spanish domestic economy. To measure this, I used the Economic Complexity index to determine, first, what is the structure of Spain’s economy, and second, how this structure is subjected to international pressures. The necessity to analyze this comes from the increasingly multipolar world order, which leaves many nations dependent on international factors.

The method used was a Mixed Data Sampling (MIDAS), which also responds to a need in data-centered academia, as the quality and frequency of data varies heavily among variables that are relevant. It relates to adjusting variables with a higher number of observations to a variable that is measured on a lower frequency. The application of this method can bring a positive light to common problems researchers find. In order to test the efficacy of this method, it was also contrasted with the findings of a Mixed-Frequency Bayesian Vector Auto Regression (MFVAR), and its respective Impulse Response Functions, to measure the impact of each variable on economic complexity.

Among the conclusions of this paper it was shown that Spain’s economy tends to rely on tourism, which in turn decreases the economic complexity of the country’s productive networks, and that may have short and long term effects in its economic outcomes, in particular, it might imply that the Spanish economy is increasingly relying on industries with a lower transferability of skills, and a very low industrial diversification, which is very susceptible to experience adverse conditions as shocks in production or consumption happen. Interestingly, geopolitical risk increased economic complexity, as economies will look to increase their industrial capabilities to depend less on external outcomes. Download the project here.