Income inequality and complexity of the productive structure: New evidence at the world level

Abstract

This paper investigates if the complexity of a country's productive structure can help explain variations in income inequality. We use country panel data on 126 countries from 1995 to 2018 and approximate a country's productive structure through the Economic Complexity Index and income inequality from the World Income Inequality Database. Our results found that the relationship between economic complexity and income inequality is not homogenous across countries and, that at the world level, is not linear. Instead, when the level of complexity of the economy is low, increases in complexity mainly lead to an increase in economic inequality. At higher levels of economic complexity, its effect on income inequality becomes negative. This means that economic complexity improves equality after certain thresholds, which seems to reflect the situation of high-income economies.