Economic complexity, human capital and income inequality: a cross-country analysis

This paper investigates the relationship between economic complexity, a measure of economic structures, and income inequality. Using cross-country OLS regression analysis, we show that countries with economic structures geared toward complex products have less inequality. Human capital is found to magnify this correlation but with subtle interaction effects. Concerns about endogeneity bias in the OLS estimates stemming from reverse causality motivate us to estimate a dynamic panel data model, using a system GMM estimator. From the system GMM estimates we find that an increase in economic complexity provokes higher inequality, not less.