Economic Complexity and the Mediating Effects of Income Inequality: Reaching Sustainable Development in Developing Countries

Abstract

According to the United Nations Development Program, sustainable development goals are fundamental for attaining a better and more sustainable future for all of us, and are a primary concern today. New indicators, such as the Economic Complexity Index (i.e., ECI), can be used to predict human development index (i.e., HDI). To be defined as a complex economy, a country, through a vast network of individuals, should be able to interlink extensive quantities of relevant knowledge to create diversified products. Political, cultural, and environmental factors should also be included in this model to improve the measurement of human development. This paper aimed to study the relationship between the ECI and HDI and the mediating effects of income inequality among developing countries. Hierarchical linear modeling was used as a statistical tool to analyze 87 developing countries from 1990 to 2017, which also studied the country-level effects of gender inequality and energy consumption. Different year lags were used for more robustness. The results show that human development increased with higher economic complexity. This relationship was, however, partially mediated by income inequality. Country-level predictors, gender inequality, and energy consumption also impacted sustainable development. Finally, it is essential to note that this model cannot be applied to developed economies.

Economic Complexity and Human Development: Moderated by Logistics and International Migration

“…In previous research, we already determined that ECI improves HDI for developing countries [8]. According to Hausmann and his collaborators, in opposition to GDP per capita, economic complexity leads to higher wealth [6].…”

“…β 4j = γ 40 + u 4j (8) β 5j = γ 50 + u 5j (9) β 6j = γ 60 + u 6j (10) When adding each control variable and predictor, we checked that within-group variances, between-group variances, and deviances decrease compare to the previous models. From the results of Table 2, we can see that the results are robust among different models with different year low HDI countries.…”

“…By exchanging the knowledge acquired through education and work experiences, individuals create a vast network, where the collective knowledge is transferred and improved, allowing the creation of diversified and complex products. As a country innovates and becomes economically complex, individuals should experience greater freedom regarding choice, capabilities, and life satisfaction [7][8][9]. Therefore, a country should have a broad set of skills to produce diversified and complex products and services.…”

Effect of Productive Capacities on Economic Complexity: Do Aid for Trade flows Matter?

“…[8] Apart from studies cited above concerning the effect of economic complexity on economic growth and development, other studies on the macroeconomic effects of economic complexity have focused of economic complexity on income inequality (e.g., Hartmann et al, 2017;Le Caous and Huarng, 2020;Lee and Vu, 2020), improve human development (e.g., Le Caous and Huarng, 2020), economic growth volatility (e.g., Güneri and Yalta, 2020;Maggioni et al, 2016;Miranda-Pinto, 2021), economic growth cycles (e.g., Canh and Thanh, 2020), labor share (Arif, 2021), and poverty (Gnangnon, 2021).…”

Economic Complexity and Poverty in Developing Countries

“…'Economic complexity' is a relatively recent complex, which refers, for a given country, to the productive knowledge embedded in domestically produced goods as well as the diversification of goods exported (e.g., Albeaik et al, 2017aAlbeaik et al, , 2017bBustos et al, 2012;Hausmann and Hidalgo, 2009;Hausmann and Hidalgo, 2011;Hidalgo et al, 2007). One of the main features of the concept of 'economic complexity' is its relation to the competitive advantage: a country with a high level of economic complexity enjoys a competitive advantage in the global economy, and through the creation of sophisticated products, would likely experience higher returns compared to countries that create less sophisticated products (see also Le Caous and Huarng, 2020). The production of complex goods requires a wide range of diverse and exclusive capabilities.…”