Poverty Gap Analysis in Light of Economic Complexity

Document Type : RESEARCH PAPER

Authors

1 Professor, Faculty of Economics, University of Tehran, Tehran, Iran

2 Master in Economics, Faculty of Economics and Administrative Sciences, University of Mazandaran, Babolsar, Iran

Abstract

Poverty reduction has long been one of the core objectives of sustainable development. Economic complexity, as an indicator of a country’s technological, human capital, and structural capacity to produce sophisticated and diversified goods, can play a critical role in shaping income distribution and welfare. This study aims to examine the impact of economic complexity on the poverty gap across 50 selected countries during the period 2010–2024. Using a dynamic panel data model estimated through the System Generalized Method of Moments (System GMM), the analysis further considers four distinct scenarios for developed countries, high-income economies, resource-rich countries, and those with an economic complexity index (ECI) above the global average. The baseline results reveal that higher economic complexity generally reduces the poverty gap, although in some groups the relationship turns positive, implying that technological sophistication may exacerbate inequality. Moreover, real GDP per capita growth is found to decrease the poverty gap, while unemployment, urbanization, and the industry-to-agriculture value-added ratio significantly increase it. Inflation is statistically insignificant. These findings suggest that in highly complex economies, complementary policies are essential to mitigate inequality and ensure that the benefits of economic sophistication are distributed more inclusively across society.

Keywords

Main Subjects

References

Abolhasani, M. J. and Samadi, S. (2021). Investigating and Analyzing the Impact of Employment in Industry on Income Inequality. Stable Economy Journal, 1(1), 1-24. (In Persian).
Albeaik, S., Kaltenberg, M., Alsaleh, M., and Hidalgo, C.A. (2017b). 729 new measures of economic complexity (Addendum to improving the economic complexity index). arXiv preprint arXiv:1708.04107.
Arellano, M., & Bover, O. (1995). Another look at the instrumental-variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51.
Bahar, D., Hausmann, R., & Hidalgo, C.A. (2014). Neighbors and the evolution of the comparative advantage of nations: Evidence of international knowledge diffusion? Journal of International Economics, 92(1), 111-123.
Banerjee, A.N., Banik, N., and Mukhopadhyay, J.P. (2015). The dynamics of income growth and poverty: evidence from districts in India. Development Policy Review, 33(3), 293-312.
Bekbolotova, S. (2016). The Effect of Economic Integration on Economic Complexity of Latecomer Countries (Doctoral dissertation, Central European University). ‏
Blanchard, O. J., & Blinder, A. S. (1986). The supply of money and the demand for goods. Quarterly Journal of Economics, 101(3), 543–565.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143.
Chu, L. K., & Hoang, D. P. (2020). How does economic complexity influence income inequality? New evidence from international data. Economic Analysis and Policy, 68, 44-57.‏
Cristelli M, Tacchella A, Pietronero L (2015) The heterogeneous dynamics of economic complexity. PLoS ONE, 10, 1-15.
Croon, T. M. (2023). Exploring the utility of energy poverty gap indices in policy analysis. Energy Policy, 176, 113287.
Dwyer, D. C. (1978).City in the third word. London: Macmillan. 260p.
Fosu, A. K. (2018). The Recent Growth Resurgence in Africa and Poverty Reduction: The Context and Evidence. Journal of African Economies, 27(1), 92-107.
Gilak Hakimabadi, M. , Zaroki, S. and Ezoji, H. (2019). The Analysis of Fiscal Illusion and Budgetary Policy in Selected Developing Countries Using Dynamic Panel Data. Applied Theories of Economics, 6(1), 21-50.  (In Persian).
Gnangnon, S. K. (2021). Economic complexity and poverty in developing countries. Economic Affairs, 41(3), 416-429.‏
Hartmann, D., Guevara, M.R., Jara-Figueroa, C., Aristarán, M., and Hidalgo, C.A. (2017). Linking economic complexity, institutions, and income inequality. World Development, 93, 75-93.
Hasanvand, A., Karimi, M. Sh., Falahati, A., & Khanzadi, A. (2022). The effect of economic complexity on income inequality in selected developing countries: A dynamic panel approach. Financial Economics, 16(58), 193–214. (In Persian).
Hassanein, E. A., Samak, N., & Abdelaziz, S. (2024). The synergetic effect of economic complexity and governance on quality of life: policy thresholds. Humanities and Social Sciences Communications, 11(1), 1-20.‏
Hausmann, R., and Hidalgo, C.A. (2009). The building blocks of economic complexity. Proceedings of the National Academy of Sciences, 106 (26), 10570-10575.
Hausmann, R., Hidalgo, C. A., Bustos, S., Coscia, M., Chung, S., Jimenez, J., Simoes, A., & Yıldırım, M. A. (2014). The Atlas of Economic Complexity: Mapping Paths to Prosperity. Harvard University, MIT Media Lab.
Hosseinidoust, S. E., jafariseresht, D., & Moradjouy Hamedani, N. (2025). Examining the Short-Term and Long-Term Effects of Economic Complexity on Capability Poverty: New Evidence from D8 Countries. Public Sector Economics Studies, 4(2), 1-25. (In Persian).
Kashi Farhad, Kh., & Shahiki Tash, M. N. (2009). Methods for identifying vulnerable groups (the first step in targeting subsidies). Economic Journal (Bimonthly Review of Economic Issues and Policies), 9(101), 51–67. (In Persian).
Khanzadi, A. , Tavassoli Nia, A. , Behnia, A. and Soltani, M. (2022). Analyzing the Effect of Economic Complexity on Income Inequality in Iran. Journal of Development and Capital, 7(2), 1-19. (In Persian).
Kočenda, E., & Poghosyan, K. (2017). Export sophistication: A dynamic panel data approach. KIER Discussion Paper, 980, 1-28.‏
Le Caous, E., and Huarng, F. (2020). Economic Complexity and the Mediating Effects of Income Inequality: Reaching Sustainable Development in Developing Countries. Sustainability, 12, 2089.
Lee, Kangkook and Vu, Trung (2019): Economic Complexity, Human Capital and Income Inequality: A Cross-Country Analysis.
Lyubimov, I.L., & Ospanova, A.G. (2019). How to Make an Economy More Complex? The Determinants of Complexity in Historical Perspective. Voprosy Economiki, 2, 36-53.
Miranda-Pinto, J. (2021). Production network structure, service share, and aggregate volatility. Review of Economic Dynamics, 39, 146-173.
Nademi, Y., & Dalvandi, M. (2023). The Impact of Economic Complexity on Poverty in Developing Countries and Providing Suggestions for the Government's Role in Reducing Poverty. Public Sector Economics Studies, 2(1), 1-18. (In Persian).
Nowin, D. , Taghavi, E. and Ezzatpanah, B. (2022). Empowerment of Informal Settlements with Emphasis on Desirable Urban Governance Indicators (Case Study: Informal Settlements of Tabriz metropolis). Spatial Planning, 12(3), 109-122. (In Persian).
Perera, L.D. H., and Lee, G. H. Y. (2013). Have economic growth and institutional quality contributed to poverty and inequality reduction in Asia? Journal of Asian Economics, 27, 71-86.
Poncet, S., and Starosta de Waldemar, F. (2013). Complexité économique et croissance – Une application au cas chinois. Revue économique, 64 (2013/3), 495-503.
Sadeghi H, basakha M, shaghaghi V. (2009). Relation of Economic Growth with Poverty and Inequality in Developing Countries. refahj. 8(33), 27-44. (In Persian).
Sarvari,A. , Karbasi,A. , Daneshvar Kakhki,M. and Hatef,H. (2013). Effect of Economic Sectors Growth Rate and Trade Liberalization on Poverty Reduction in Iran. Agricultural Economics and Development, 21(3), 191-210. (In Persian).
Stojkoski, V., Utkovski, Z., and Kocarev, L. (2016). The Impact of Services on Economic Complexity: Service Sophistication as Route for Economic Growth. PLoS ONE 11(8): e0161633.
Townsend, P. (1985). A sociological approach to the measurement of poverty — A rejoinder [Poor, relatively speaking]. Oxford Economic Papers, 37(4), 659-668.
Zhang, L., & Wang, H. (2023). Measuring multidimensional poverty: A global perspective. Quality & Quantity, 57(6), 3451–3470.
Stable Economy Journal
Volume 6, Issue 4 - Serial Number 20
December 2025
Pages 135-159

Files

Share

How to cite

Statistics