Связь между экономической сложностью и неравенством доходов в разных регионах мировой экономики /The nexus between economic complexity and income inequality in different regions of the world economy
Аннотация
Over the past decades, income inequality has increased significantly within most countries Studies show that income inequality is a major obstacle to sustainable and inclusive economic growth and hinders the long-term socioeconomic development of countries. Thus, the study of the factors influencing the increasing level of inequality is relevant. The aim of this study is to assess the impact of economic complexity on income inequality.
The introduction of the concept of economic complexity has led to a new line of research on inequality [26]. Economic complexity measures a sophistication of a country’s productive structure by combining information on the diversity of products that country makes and exports and the ubiquity of its products in international trade.
This theory implies that every good produced by an economy contains information about the knowledge used in its production. The more knowledge an economy has, the more combinations of that knowledge it can produce, and hence the more products it can produce, and the more unique those products can be. In other words, economic complexity is a measure of the knowledge accumulated in an economy, expressed in the products it produces.
The economic complexity index is calculated based on export data and depends on two components. Diversity is a measure of how many products we can produce and export (how diversified our economy is). And prevalence - how unique our products are in world trade. So, a complex economy is an economy with high production diversification and low product prevalence (i.e. producing more unique products).
Earlier studies have found that increasing economic complexity is one of the most accurate predictors of economic growth [11, 14, 26, 55]. In addition, a complex and diversified economy can offer greater employment opportunities, access to a greater variety of skills, knowledge, social capital, and more developed institutions. This means that increasing economic complexity has the potential to reduce income inequality. However, the results of research on inequality and economic complexity are mixed, and there is currently no consensus on whether increasing complexity leads to an increase in inequality or contributes to its reduction.
At the same time, interest in the Economic Complexity Index (ECI) has increased significantly; governments are interested in using the ECI as a tool for developing policies that promote economic diversification, promote knowledge and technology sectors, and identify and develop a country's competitive advantages in the global market. Thus, the tools and theory of economic complexity were used in the formation of development strategies, in particular, the European Union, Kazakhstan, Mexico and Australia.
Thus, today, there is an understanding that increasing the complexity of the economy will promote economic growth. However, what is the impact of economic complexity on the level of inequality in countries? In our study, we attempted to shed light on this issue.
Based on a review of the literature, we identified three possible relationships between complexity and inequality: 1) a positive relationship, where an increase in complexity leads to an increase in inequality [7, 35, 37]; 2) a negative relationship, when increasing complexity leads to a decrease in inequality [22, 36, 46]; and 3) a non-linear relationship, when the complexity of the economy initially leads to an increase in inequality, but after a certain level it begins to reduce it [2, 8, 49]. It was also found that this relationship is not homogeneous across country groups, so we conducted country subgroup analyzes to look at the issue from this perspective.
Whereas previous studies used large samples of countries, we instead chose to analyze this relationship with a smaller sample of countries to reflect the characteristics of countries and regions and to consider possible differences between them in the impact of economic complexity on inequality.
Therefore, the subject of this research is the relationship between economic complexity and income inequality. The object of research is a group of 31 selected countries in Europe, Central Asia, the Middle East, and North Africa during the period 1996-2020. As for the methods, we applied a fixed effects model and a two-stage least squares model with instrumental variables.
As a result, we found a positive and statistically significant association between economic complexity and income inequality in our sample of countries. In other words, the results showed that, in general, economic complexity can increase inequality. However, this effect is heterogeneous, as evidenced by further subgroup analysis.
We divided the countries into subgroups depending on the region to which they belong: Europe and Central Asia; Middle East and North Africa. We also considered a group of former Soviet republics, suggesting that they may have common patterns of socio-economic development. The effect of economic complexity on inequality was found to change only in the group of countries in the Middle East and North Africa, which are characterized by the highest levels of inequality and the lowest levels of complexity. In this group, an increase in economic complexity leads to a decrease in inequality.
Based on this, we again divided our sample into broader groups, but now according to the level of economic complexity, i.e. for countries: with high and low complexity. In this case, we also found that countries with lower levels of complexity may experience a decrease in inequality as their level of complexity increases.
Thus, we conclude that, in general, economic complexity tends to increase inequality. However, this effect varies across countries and depends on their current stage of development.
In economies that have already reached a high level of complexity, further sophistication and diversification can lead to increased inequality. This may be due to the insufficient quality of institutions, the concentration of wealth and market power, as well as the widening income gap between workers in the knowledge economy and workers in traditional production.
At the same time, the complexity and diversification of the economy increase the welfare of the country as a whole, thereby providing the potential to increase the income level of all population groups [11]. Therefore, along with increasing economic complexity, it is important to pay attention to the factors that allow different groups of the population to benefit from this process. This will avoid rising income inequality as the economy becomes more complex. Thus, the actions of governments should be aimed at improving the institutions, management and regulation of markets that support the rights of workers, provide decent working conditions.
However, in countries with lower levels of complexity, we observe that economic complexity can reduce inequality by encouraging a country to diversify and develop, create new jobs, and expand education and training opportunities. Therefore, development strategies should focus on the development of infrastructure, innovation, education and training that meet the needs of the economy.
Overall, our results show that the impact of economic complexity is ambiguous and may vary in different countries, which, of course, should be considered in the development of strategies for countries interested in sustainable and inclusive economic growth.
The introduction of the concept of economic complexity has led to a new line of research on inequality [26]. Economic complexity measures a sophistication of a country’s productive structure by combining information on the diversity of products that country makes and exports and the ubiquity of its products in international trade.
This theory implies that every good produced by an economy contains information about the knowledge used in its production. The more knowledge an economy has, the more combinations of that knowledge it can produce, and hence the more products it can produce, and the more unique those products can be. In other words, economic complexity is a measure of the knowledge accumulated in an economy, expressed in the products it produces.
The economic complexity index is calculated based on export data and depends on two components. Diversity is a measure of how many products we can produce and export (how diversified our economy is). And prevalence - how unique our products are in world trade. So, a complex economy is an economy with high production diversification and low product prevalence (i.e. producing more unique products).
Earlier studies have found that increasing economic complexity is one of the most accurate predictors of economic growth [11, 14, 26, 55]. In addition, a complex and diversified economy can offer greater employment opportunities, access to a greater variety of skills, knowledge, social capital, and more developed institutions. This means that increasing economic complexity has the potential to reduce income inequality. However, the results of research on inequality and economic complexity are mixed, and there is currently no consensus on whether increasing complexity leads to an increase in inequality or contributes to its reduction.
At the same time, interest in the Economic Complexity Index (ECI) has increased significantly; governments are interested in using the ECI as a tool for developing policies that promote economic diversification, promote knowledge and technology sectors, and identify and develop a country's competitive advantages in the global market. Thus, the tools and theory of economic complexity were used in the formation of development strategies, in particular, the European Union, Kazakhstan, Mexico and Australia.
Thus, today, there is an understanding that increasing the complexity of the economy will promote economic growth. However, what is the impact of economic complexity on the level of inequality in countries? In our study, we attempted to shed light on this issue.
Based on a review of the literature, we identified three possible relationships between complexity and inequality: 1) a positive relationship, where an increase in complexity leads to an increase in inequality [7, 35, 37]; 2) a negative relationship, when increasing complexity leads to a decrease in inequality [22, 36, 46]; and 3) a non-linear relationship, when the complexity of the economy initially leads to an increase in inequality, but after a certain level it begins to reduce it [2, 8, 49]. It was also found that this relationship is not homogeneous across country groups, so we conducted country subgroup analyzes to look at the issue from this perspective.
Whereas previous studies used large samples of countries, we instead chose to analyze this relationship with a smaller sample of countries to reflect the characteristics of countries and regions and to consider possible differences between them in the impact of economic complexity on inequality.
Therefore, the subject of this research is the relationship between economic complexity and income inequality. The object of research is a group of 31 selected countries in Europe, Central Asia, the Middle East, and North Africa during the period 1996-2020. As for the methods, we applied a fixed effects model and a two-stage least squares model with instrumental variables.
As a result, we found a positive and statistically significant association between economic complexity and income inequality in our sample of countries. In other words, the results showed that, in general, economic complexity can increase inequality. However, this effect is heterogeneous, as evidenced by further subgroup analysis.
We divided the countries into subgroups depending on the region to which they belong: Europe and Central Asia; Middle East and North Africa. We also considered a group of former Soviet republics, suggesting that they may have common patterns of socio-economic development. The effect of economic complexity on inequality was found to change only in the group of countries in the Middle East and North Africa, which are characterized by the highest levels of inequality and the lowest levels of complexity. In this group, an increase in economic complexity leads to a decrease in inequality.
Based on this, we again divided our sample into broader groups, but now according to the level of economic complexity, i.e. for countries: with high and low complexity. In this case, we also found that countries with lower levels of complexity may experience a decrease in inequality as their level of complexity increases.
Thus, we conclude that, in general, economic complexity tends to increase inequality. However, this effect varies across countries and depends on their current stage of development.
In economies that have already reached a high level of complexity, further sophistication and diversification can lead to increased inequality. This may be due to the insufficient quality of institutions, the concentration of wealth and market power, as well as the widening income gap between workers in the knowledge economy and workers in traditional production.
At the same time, the complexity and diversification of the economy increase the welfare of the country as a whole, thereby providing the potential to increase the income level of all population groups [11]. Therefore, along with increasing economic complexity, it is important to pay attention to the factors that allow different groups of the population to benefit from this process. This will avoid rising income inequality as the economy becomes more complex. Thus, the actions of governments should be aimed at improving the institutions, management and regulation of markets that support the rights of workers, provide decent working conditions.
However, in countries with lower levels of complexity, we observe that economic complexity can reduce inequality by encouraging a country to diversify and develop, create new jobs, and expand education and training opportunities. Therefore, development strategies should focus on the development of infrastructure, innovation, education and training that meet the needs of the economy.
Overall, our results show that the impact of economic complexity is ambiguous and may vary in different countries, which, of course, should be considered in the development of strategies for countries interested in sustainable and inclusive economic growth.