Economic Complexity, Shadow Economy, and Income Inequality: Fresh Evidence from Panel Data

• Published in: International economic journal Vol. 38; no. 2; pp. 270 - 292
• Main Authors: Pham, Manh Hung, Truong, Hoang Diep Huong, Hoang, Dung Phuong
• Format: Journal Article
• Language: English
• Published: Abingdon Routledge 01.06.2024; Taylor & Francis Ltd; 한국국제경제학회
• Subjects: Complexity; Economic complexity; Economic inequality; Income distribution; Income inequality; Informal economy; Panel data; shadow economy; Socioeconomic factors; system-GMM; 경제학
• ISSN: 1016-8737; 1743-517X
• DOI: 10.1080/10168737.2024.2311704

This research attempts to examine the effects of economic complexity and shadow economy on income inequality for a panel dataset of 99 countries. The two-step system GMM estimation is employed to capture the non-linear relationships among interested variables. The findings indicate that income disparity is significantly and non-linearly linked with economic complexity and gray economy. First, there exists a U-shaped relationship between economic complexity and income disparity. The turning point for which the effect of economic complexity on income inequality changes from negative to positive is −0.732. Second, the impact of the shadow economy on income inequality displays an inverted U-shaped pattern. The estimated threshold above which the marginal effect of the shadow economy on income inequality changes from positive to negative equals 15.6%. Given the complications of these relationships, the governments are advised to take into consideration the situation of these two socio-economic issues when developing income distribution-related policies.