How does export diversification affect income inequality? International evidence

This research explores the non-linear relationship between income inequality and export diversification by a panel quantile regression approach, employing panel data from 90 countries during the period 2002–2014. First, we find that export diversification exacerbates income inequality for countries with low and medium levels of such inequality. Second, using political risk as the interactive item to study the link between income inequality and export diversification, we note for those with middle and low levels of income inequality that higher political risk leads to more favorable export diversification, which helps reduce the income inequality. Moreover, this paper shows that the intervention of the political risk variable makes export diversification reduce income inequality levels at the middle quintile distribution of income inequality in both high- and low-income countries. Lastly, we present that the influences of export diversification and political risk are more pronounced in countries with a high export diversification index. Our results provide policy implications to governments and future researchers.