Economic Complexity and the Mediating Effects of Income Inequality: Reaching Sustainable Development in Developing Countries

Abstract

According to the United Nations Development Program, sustainable development goals are fundamental for attaining a better and more sustainable future for all of us, and are a primary concern today. New indicators, such as the Economic Complexity Index (i.e., ECI), can be used to predict human development index (i.e., HDI). To be defined as a complex economy, a country, through a vast network of individuals, should be able to interlink extensive quantities of relevant knowledge to create diversified products. Political, cultural, and environmental factors should also be included in this model to improve the measurement of human development. This paper aimed to study the relationship between the ECI and HDI and the mediating effects of income inequality among developing countries. Hierarchical linear modeling was used as a statistical tool to analyze 87 developing countries from 1990 to 2017, which also studied the country-level effects of gender inequality and energy consumption. Different year lags were used for more robustness. The results show that human development increased with higher economic complexity. This relationship was, however, partially mediated by income inequality. Country-level predictors, gender inequality, and energy consumption also impacted sustainable development. Finally, it is essential to note that this model cannot be applied to developed economies.