Using Export Complexity to Explain Income Inequality

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Researchers from MIT have developed a new method for predicting the economic success of countries around the world: the complexity of that country’s export economy. For the last decade or so, Professor César Hidalgo and his colleagues have been doing research and writing papers to back up this idea. They argue that “not just [the] diversity but the expertise and technological infrastructure required to produce [exports] is a better predictor of future economic growth than factors economists have historically focused on, such as capital and education.”

And what’s more, the most recent research shows that this complexity can also say a lot about income equality in those countries as well. Basically, countries with greater export complexity have lower income inequality because there are more workers in more industries that are generating exports and, subsequently, income. Looking at data collected between 1963 and 2008, researchers found that “countries whose economic complexity increased, such as South Korea, saw reductions in income inequality, while countries whose economic complexity decreased, such as Norway, saw income inequality increase.”

This research comes at a time of renewed interest, both politically and scientifically, in the issue of income inequality in many parts of the world. There are a number of factors that can be used to determine the current or future success of an economy, but not all of those factors are equally important. Relying solely on GDP, which is often the case, is much less useful than combining it with export complexity, education, and population. However, relying just on export complexity seems to work almost as well as using all of the aforementioned methods.

This development could be extremely useful to both governments and businesses in the future, as they seek to do right by their citizens and employees, respectively. Essentially, finding a new niche isn’t just good for a company, but it can help the country as well.

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