Research on economic complexity (Hidalgo and Hausmann, 2009; Hidalgo, 2021) has made significant contributions to moving beyond the measurement of aggregate production (e.g. GDPpc) toward the measurement of the quality of economic development. By considering types of products, not merely the number of products, researchers can have/developed a better understanding of the ability of economies to accumulate knowledge, generate and distribute income, as well how institutions co-evolve with productive sophistication processes.
It makes a difference for the inclusive growth prospects of an economy if its productive structure focuses on simple products that are based on natural resources, cheap labor, or economies of scale (such as crude petroleum, textile industries, or cocoa beans); or, if instead, it focuses on a variety of complex products based on high knowledge intensity, networks of skilled labor, or collective learning (such as cars, robots, and medicine) (Hartmann et al., 2017).
However, the association between economic development and inequality is quite complex, and recent research illustrates that the effects of economic complexity on inequality reverse between the national and regional levels. Figure 1 illustrates that while the Economic Complexity Index (ECI) has a negative association with the GINI index at the country level, it has a slightly positive association at the metropolitan areas level in the US and the mesoregion level in Brazil (Hartmann and Pinheiro, 2022).
There are several reasons for this behavior. At the regional level, agglomeration effects (e.g., migration, innovation, and economic activities) and labor market polarization effects between high and low-skilled activities in large cities tend to push the system towards higher levels of inequality within and across cities. However, at the national level inclusive institutions tend to co-evolve positively with higher levels of economic complexity. Complex economies have a tendency to outsource undesirable products, establish redistributive policy measures (across regions and people), and require more skilled and well-paid labor and institutions that allow for mutual learning between different agents of the economy.
Within this line of research, NECODE researchers analyze these complex and dynamic associations between economic complexity, different types of inequality, and inclusive growth prospects in different periods of time and at spatial levels of aggregation.
Dominik Hartmann and Flavio L. Pinheiro
References:
Hartmann, D. & Pinheiro, F. (2022) Economic complexity and inequality at the national and regional level; In P. Chen, W. Elsner, and A. Pyka (eds.) HANDBOOK OF COMPLEXITY ECONOMICS, Routledge.
Hartmann, D., Guevara, M. R., Jara – Figueroa, C., Aristarán, M., & Hidalgo, C. A. (2017). Linking economic complexity, institutions, and income inequality. World development, 93, 75-93.
Hidalgo, C. A. (2021). Economic complexity theory and applications. Nature Reviews Physics, 3(2), 92-113.
Hidalgo, C. A., & Hausmann, R. (2009). The building blocks of economic complexity. Proceedings of the national academy of sciences, 106(26), 10570-10575.