Income inequality and economic complexity: Evidence from Mexican states

Abstract

We study the relationship between income inequality and economic complexity in Mexican states between 2004 and 2019. The results show that economic complexity is statistically related to inequality; that is, states with more diversified and sophisticated economic structures (more complex economies) tend to have fairer income distribution. Furthermore, there is some evidence of a local spatial spillover effect of economic complexity; in short, a state's level of income inequality is not only related to its own level of economic complexity but also its neighbours' level. Employing panel methods, our estimations use control variables that other similar studies have considered important, such as gross domestic product, population, education, corruption control, government effectiveness, voice and accountability, and rule of law. The results are relevant for policymakers in order to adapt policies to reduce inequality.