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

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  • Manh Hung Pham
  • Hoang Diep Huong Truong
  • Dung Phuong Hoang

Abstract

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.

Suggested Citation

  • Manh Hung Pham & Hoang Diep Huong Truong & Dung Phuong Hoang, 2024. "Economic Complexity, Shadow Economy, and Income Inequality: Fresh Evidence from Panel Data," International Economic Journal, Taylor & Francis Journals, vol. 38(2), pages 270-292, April.
    • Handle: RePEc:taf:intecj:v:38:y:2024:i:2:p:270-292
    DOI: 10.1080/10168737.2024.2311704
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