The Impact of Economic Complexity on Income Inequality with Emphasis on the Role of Human Development Index in Iran's Economy with ARDL Bootstrap Approach

Document Type : Research Paper

Authors

1 university of Ilam

2 PhD student in Economics, Urmia University

3 ilam university

10.22103/jdc.2022.18921.1197

Abstract

The index of economic complexity is expressed by analyzing the relations between countries and their export products and reflects the knowledge embedded in the productive structure of an economy. By focusing on the knowledge embedded in production, economic complexity provides a deeper understanding of what a country produces and what activity is involved, as opposed to simply examining the quantities produced or the factors of production and technology used. As economic complexity changes, rewards change to different skills and levels of knowledge, and thus have a direct impact on wage differences. In particular, as economic complexity increases, so does the demand for knowledge and, consequently, the demand for skilled labor; The result is an increase in the disparity between the wages of skilled and unskilled workers. On the other hand, after reaching a certain level of economic complexity, the inequality between the wages of skilled and unskilled workers decreases. In this paper, the relationship between economic complexity and income inequality has been investigated using Iranian data from 1350 to 1398 using the ARDL bootstrap model. The results show that economic complexity is significantly related to higher income inequality. In addition, since creating economic complexity is a long and costly process, it has been examined whether changes in the nature of this relationship depend on the evolution of other economic and social factors. The results show that trade openness and economic complexity have an increasing effect on income inequality. Also, in an economy with lower levels of education (human capital), unproductive government spending, and low economic openness, economic complexity cannot reduce income inequality. Our findings are important for policymakers in formulating their policies to combat inequality in the development of the knowledge-based economy.

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Main Subjects

Journal of Development and Capital

Articles in Press, Accepted Manuscript
Available Online from 19 April 2022

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History

  • Receive Date: 26 January 2022
  • Revise Date: 14 March 2022
  • Accept Date: 19 April 2022

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