Abstract. A particular country’s productive knowledge and sophistication become a crucial determinant for the exported products in the increasingly integrated global trade. However, studies
that emphasize the connection between economic complexity and trade flows are still sparse.
This research aims to examine the role of economic complexity on bilateral trade flows of 27
countries in COMESA and East Asia using the gravity model from 1995 till 2019. Based on
countries’ geographical regions and income levels, the empirical estimation of the study applied
the Poisson pseudo maximum likelihood (PPML) estimator. The main results are robust to various model specifications and consistent with the expectations of the gravity model indicators.
The study found strong empirical evidence that the expansion of economic sophistication and
diversification enlarges trade flows of different exported goods. Explicitly, economic complexity
increases the exports of machinery and transport equipment alongside manufactured products,
while its effects on agricultural exports are negligible. Thus, this study proposes that the countries
should engage in more sophisticated Research and Development (R&D), attract multinational
companies, establish industrial policies, and improve their productivity by utilizing the existing
production network. They should move to a more diversified production and trade structure to
enhance their bilateral trade flows.
Keywords: economic complexity, bilateral trade flows, export diversification, gravity model,
PPML, regional trade agreement.