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Linking Economic Complexity, Institutions and Income Inequality
A country's mix of products predicts its subsequent pattern of
diversification and economic growth. But does this product mix also predict
income inequality? Here we combine methods from econometrics, network science,
and economic complexity to show that countries exporting complex products (as
measured by the Economic Complexity Index) have lower levels of income
inequality than countries exporting simpler products. Using multivariate
regression analysis, we show that economic complexity is a significant and
negative predictor of income inequality and that this relationship is robust to
controlling for aggregate measures of income, institutions, export
concentration, and human capital. Moreover, we introduce a measure that
associates a product to a level of income inequality equal to the average GINI
of the countries exporting that product (weighted by the share the product
represents in that country's export basket). We use this measure together with
the network of related products (or product space) to illustrate how the
development of new products is associated with changes in income inequality.
These findings show that economic complexity captures information about an
economy's level of development that is relevant to the ways an economy
generates and distributes its income. Moreover, these findings suggest that a
country's productive structure may limit its range of income inequality.
Finally, we make our results available through an online resource that allows
for its users to visualize the structural transformation of over 150 countries
and their associated changes in income inequality between 1963 and 2008