Complexity of exports links with inequality of incomes

IN A series of papers over the past 10 years, MIT Professor César Hidalgo and his collaborators have argued that the complexity of a country’s exports — not just their diversity but the expertise and technological infrastructure required to produce them — is a better predictor of future economic growth than factors economists have historically focused on, such as capital and education.

Now, a new paper by Hidalgo and his colleagues argues that everything else being equal, the complexity of a country’s exports also correlates with its degree of economic equality: The more complex a country’s products, the greater equality it enjoys relative to similar-sized countries with similar-sized economies.

“When people talk about the role of policy in inequality, there is an implicit assumption that you can always reduce inequality using only redistributive policies,” says Hidalgo. “What these new results are telling us is that the effectiveness of policy is limited because inequality lives within a range of values that are determined by your underlying industrial structure.

“So if you’re a country like Venezuela, no matter how much money Chavez or Maduro gives out, you’renotgoingtobeabletoreduceinequality, because, well, all the money is coming in from one industry, and the 30,000 people involved in that industry of course are going to have an advantageintheeconomy.while,ifyou’re in a country like Germany or Switzerland, where the economy is very diversified, and there are many people who are generating money in manydifferentindustries,firmsaregoing to be under much more pressure to be more inclusive and redistributive.”

For Hidalgo and his colleagues, the complexity of a product is related to the breadth of knowledge required to produce it. The Phds who operate a billion-dollar chip-fabrication facility are repositories of knowledge, and the facility of itself is the embodiment of knowledge. But complexity also factors in the infrastructure and institutions that facilitate the aggregation of knowledge, such as reliable transportation and communication systems, and a culture of trust that enables productive collaboration.

(EDITED EXCERPTS, MIT NEWS)