Economic Complexity and Income Inequality Across Countries and Regions

Abstract: This thesis provides a comprehensive empirical study of the association between economic complexity and income inequality from a multilevel macro perspective. It explores the relationship between economic complexity and income inequality across the countries and regions of the OECD, with a particular focus on regional income inequality in Spain. This relationship is assessed using regression analysis throughout three parts focusing on different income inequality measurements as the dependent variables and the national and regional Economic Complexity Index as the explanatory variables. Part I focuses on the impact of economic complexity on national income inequality. The study finds that economic complexity negatively correlates with national income inequality across OECD countries. Part II looks at interregional inequalities, evaluating the impact economic complexity has on the level of regional inequalities across the OECD countries. The study cannot find a significant relationship between the variables. However, Part III, which focuses more specifically on the association between regional inequalities and economic complexity across Spanish regions, shows that regions with higher Economic Complexity Index levels also have higher income levels. Therefore, divergence over time because of differing economic complexity levels cannot be ruled out. Additionally, Part III assesses the effects of economic complexity on within-regional inequalities across the Spanish provinces. It finds that economic complexity is correlated with lower income inequality levels across the Spanish provinces, especially in predominantly urban and urban-rural mixed regions. The study also shows that the Economic Complexity Index better predicts income equality than GDP.