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Economic Complexity, Human Capital and Income Inequality: A Cross-Country Analysis

Lee, Kang-Kook and Vu, Trung (2019): Economic Complexity, Human Capital and Income Inequality: A Cross-Country Analysis.

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Abstract

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 enjoy a lower level of inequality. Human capital is found to magnify this correlation. Different measures of human capital also have differentiated interaction effects. Concerns about the endogeneity bias of OLS estimates motivate us to estimate a dynamic panel data model, using a system GMM estimator. We find that an increase in economic complexity provokes higher inequality.

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