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 and network science to show that countries exporting complex products have less income inequality than countries exporting simpler products and that increases in economic complexity are accompanied by decreases in income inequality. The connection between economic complexity and income inequality is robust to controlling for measures of income, institutions, and human capital. Additionally, we measure the level of income inequality of the countries exporting a product and use this measure together with the network of related products (or product space) to illustrate how changes in a country's productive structure translate into changes in income inequality. These findings suggest that social policies alone might lack the strength required to fully modify income inequality in absence of changes to a country's productive structure.