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In Latin America and the Caribbean (LAC), the challenge of economic recovery is now more pressing than ever after the impact of COVID-19. The cultural and creative industries (CCI) are one of the sectors that can contribute to a long-term strategy of inclusive and sustainable growth. Nevertheless, the pandemic has created new challenges for CCI, and it has also intensified those faced by the sector before the health crisis, highlighting its fragile foundations. These challenges can be grouped into four areas: employment, digitalization and new business models, access to finance, and a narrative for the sector.

A survey conducted by MERCOSUR Cultural, the United Nations Educational, Scientific, and Cultural Organization (UNESCO), the Ibero-American General Secretariat (SEGIB), the Organization of Ibero-American States (OEI), and the Inter-American Development Bank (IDB) showed this reality and gave guidelines for future initiatives and policies to be implemented to take advantage of these sectors in the long-term strategy of economic recovery. The CCIs are made up of many sectors, different from one another. Intersectoral and interministerial work is essential for the CCIs. And also, a single approach won't work across sectors and countries.

The purpose of this study is to explore the effect of economic complexity on services export diversification. This study has been built on two arguments. The first one draws from Eichengreen and Gupta (2013b) and states that countries that export complex products would have a high penetration in the international goods market and establish a network that could be exploited to expand their range of services export items. Second, by inducing higher inflows of foreign direct investment (FDI), greater economic complexity could contribute to fostering services export diversification.

The empirical analysis uses a panel data set of 109 countries (both developed and developing countries) over the period of 1985–2014, and in particular, non-overlapping sub-periods of five-year average data. Building on the two-step system Generalized Method of Moments, the empirical analysis has provided support for the above-mentioned two theoretical hypotheses.

The findings indicate that greater economic complexity has been associated with a higher level of services export diversification, and the magnitude of this positive effect is higher for high-income countries than for developing countries. Furthermore, the share of FDI inflows (in percentage of gross domestic product) matters for the effect of economic complexity on services export diversification. Specially, economic complexity exerts a higher positive effect on services export diversification, as the share of net FDI inflows in gross domestic product increases.

From a policy perspective, the analysis complements previous works on the effects of economic complexity (e.g. on economic growth, income inequality, poverty, etc.), by showing that economic complexity also matters for fostering the diversification of countries' services export items. Enhancing economic complexity should be at the heart of policymakers' agenda, both at the national and international levels, given its strong positive effect on macroeconomic aggregates, including on services export diversification, the latter being also an important engine for economic growth (Anand et al., 2012; Gnangnon, 2021a; Mishra et al., 2011; Stojkoski et al., 2016).

This study opens an avenue for future research on whether services export diversification influences economic complexity. One avenue for future research could also be to explore the effect of comparative advantage on goods and services (using the Balassa's revealed comparative advantage index) on services export diversification. Future works could also examine how economic complexity affects different categories of services sectors, including traditional services and modern services.

To the best of the author’s knowledge, this study is the first to address this topic in the literature.