The Export Diversification Effects on Income Inequality: New Evidence from Countries with High and Low Political Risk

Document Type : Original Article


1 Associate Professor of Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran

2 PhD Candidate in Econometrics, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran

3 PhD Candidate in International Economics, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran



Export diversification is a preventive measure against trade shocks, which is defined as an increase in the number of export goods and a decrease in a country's dependence on a single source for exports, and it can help macroeconomic stability. This index is an essential aspect of the development process not only for rentier governments but also for all countries, which can affect income inequality in various ways. Therefore, the study tries to investigate the effect of export diversity on income inequality and the impacts of political risk on the interaction between these two variables, in 81 countries with high and low political risk using the panel quantile model with fixed effects during the years 2000-2019. The results show that export diversity increases income inequality in both groups of countries under investigation. However, export diversification effects on income inequality is greater in countries with high political risk. Therefore, in these countries, the more skilled labor has been used to compensate for the diversification costs and has caused a high wage gap. Industrialization and increasing the degree of trade openness reduce income inequality. Foreign direct investment increases income inequality in both categories of countries. GDP per capita has a non-linear inverse U-shaped effect on income inequality, that Kuznets' hypothesis is confirmed in both categories of countries.


Main Subjects

- A.T. (2019). What factors affect income inequality and economic growth in middle-income countries? Journal of Risk and Financial Management, 12(1), 40.
- Abolhasani, M. J., & Samadi, S. (2021). Investigating and analyzing the impact of employment in industry on income inequality. Stable Economy Journal, 1(1), 1-24 [In Persian].
- Ahmad, E., Ullah, M.A., & Arfeen, M.I. (2012). Does corruption affect economic growth? Latin American journal of economics, 49(2), 277-305.
- Amani, R., & Ahmadzadeh, K. (2022). Investigating the Impact of Technology, Innovation and Globalization on Income Inequality. Journal of Economic Research (Tahghighat-E-Eghtesadi), 57(2), 221-257 [In Persian].
- Andersson, F.N. (2023). Income inequality and carbon emissions in the United States 1929–2019. Ecological Economics, 204, 107633.
- Aydin, C., & Esen, Ö. (2018). Does the level of energy intensity matter in the effect of energy consumption on the growth of transition economies? Evidence from dynamic panel threshold analysis. Energy Economics69, 185-195.
- Balcilar, M., Gupta, R., Lee, C.C., & Olasehinde-Williams, G. (2020). Insurance and economic policy uncertainty. Research in International Business and Finance, 54, 101253.
- Bayar, Y., & Gavriletea, M.D. (2018). Foreign direct investment inflows and financial development in Central and Eastern European Union countries: A panel cointegration and causality. International Journal of Financial Studies, 6(2), 55.
- Blancheton, B., & Chhorn, D. (2019). Export diversification, specialisation and inequality: Evidence from Asian and Western countries. The Journal of International Trade & Economic Development, 28(2), 189-229.
- Blanco, G., & Ram, R. (2019). Level of development and income inequality in the United States: Kuznets hypothesis revisited once again. Economic Modelling, 80, 400-406.
- Cruces, G., Fields, G.S., Jaume, D., & Viollaz, M. (2017). Growth, employment, and poverty in Latin America (p. 528). Oxford University Press.
- De Hoyos, R.E., & Sarafidis, V. (2006). Testing for cross-sectional dependence in panel-data models. The Stata journal, 6(4), 482-496.
- Dogan, A., & Pata, U. K. (2022). The role of ICT, R&D spending and renewable energy consumption on environmental quality: Testing the LCC hypothesis for G7 countries. Journal of Cleaner Production, 380, 135038.
- Eisazadeh, Y., & Aghaei, M. (2018). The Role of Information and Communication Technology in the Relationship between Foreign Direct Investment and Income Inequality: Evidence from Selected Countries. BI Management Studies, 6(23), 83-106 [In Persian].
- Faggian, A., Michelangeli, A., & Tkach, K. (2023). Income inequality in Europe: Reality, perceptions, and hopes. Research in Globalization, 6, 100118.
- Faghiri,Z. & Davoodi, P.(2022). Identifying factors affecting the horizontal diversification of export using the ARDL method by designing a new index of export diversification, Economics & Modelling, 3(13). 67-100 [In Persian].
- Gnangoin, Y.T.B., Du, L., Assamoi, G., Edjoukou, A. J., & Kassi, D.F. (2019). Public spending, income inequality and economic growth in Asian countries: A panel GMM approach. Economies, 7(4), 115.
- Googerdchian, A., & Mirjaberi, Z. (2017). Evaluation of the Effects of Political and Commercial Risks on Iran’s Non-Oil Exports to the Main Export Destination Countries, with an Emphasis on Export Credit Insurance Subsidy. The Journal of Economic Policy, 9(17), 119-143 [In Persian].
- Huang, K., Yan, W., Sim, N., Guo, Y., & Xie, F. (2022). Can trade explain the rising trends in income inequality? Insights from 40 years of empirical studies. Economic Modelling, 107, 105725.
- Jolo, A. M., Ari, I., & Koç, M. (2022). Driving factors of economic diversification in resource-rich countries via panel data evidence. Sustainability, 14(5), 2797.
- Kavya, T. B., & Shijin, S. (2020). Economic development, financial development, and income inequality nexus. Borsa Istanbul Review, 20(1), 80-93.
- Kazemzadeh, E., Karimi Alavijeh, N., & Ebrahimi Salari, T. (2020). The Effect of Governance on Carbon Dioxide Expansion in the G8 Countries: A Panel Quantile Regression Approach. Journal Of Economics and Regional Development, 26(18), 173-196 [In Persian].
- Kim, H., & Rhee, D. E. (2022). The effects of asset prices on income inequality: Redistribution policy does matter. Economic Modelling, 113, 105899.
- Le, T. H., Nguyen, C. P., Su, T. D., & Tran-Nam, B. (2020). The Kuznets curve for export diversification and income inequality: Evidence from a global sample. Economic Analysis and Policy, 65, 21-39.
- Lee, C. C., & Ho, S. J. (2022). Impacts of export diversification on energy intensity, renewable energy, and waste energy in 121 countries: Do environmental regulations matter? Renewable Energy, 199, 1510-1522.
- Lee, C. C., & Wang, E. Z. (2021). Economic complexity and income inequality: Does country risk matter? Social Indicators Research, 154, 35-60.
- Lee, C. C., Xing, W., & Lee, C. C. (2022). The impact of energy security on income inequality: The key role of economic development. Energy, 248, 123564.
- ‏Lee, C.C., & Wang, E.Z. (2021). Economic complexity and income inequality: Does country risk matter? Social Indicators Research, 154, 35-60.
- Lee, C.C., Yuan, Z., & Ho, S.J. (2022). How does export diversification affect income inequality? International evidence. Structural Change and Economic Dynamics63, 410-421.
- Li, D., Wang, X., Xu, Y., & Ren, Y. (2022). Analysis of Export Diversification and Impact of Globalisation on Income Inequality: Evidence from Asian Countries. Global Economic Review, 51(3), 195-215.
- Liu, M., Chen, Z., Sowah Jr, J. K., Ahmed, Z., & Kirikkaleli, D. (2023). The dynamic impact of energy productivity and economic growth on environmental sustainability in South European countries. Gondwana Research, 115, 116-127.
- Ma, Y., & Chen, D. (2020). Openness, rural-urban inequality, and happiness in China. Economic Systems, 44(4), 100834.
- Maleki, A. (2011). Diversification in Non-Oil Export of Iran with Introduction of a New Index. Journal of Economic Research and Policies, 19(58), 79-106 [In Persian].
- Malla, M. H., & Pathranarakul, P. (2022). Fiscal policy and income inequality: the critical role of institutional capacity. Economies, 10(5), 115.
- Mdingi, K., & Ho, S. Y. (2021). Literature review on income inequality and economic growth. MethodsX, 8, 101402.
- Mehic, A. (2018). Industrial employment and income inequality: Evidence from panel data. Structural Change and Economic Dynamics, 45, 84-93.
- Nguyen, C.P., & Su, T.D. (2022). Export dynamics and income inequality: New evidence on export quality. Social Indicators Research, 163(3), 1063-1113.
- Piao, Y. A., Li, M., Sun, H., & Yang, Y. (2023). Income Inequality, Household Debt, and Consumption Growth in the United States. Sustainability, 15(5), 3910.
- Powell, D. (2016). Quantile regression with non-additive fixed effects. Empirical Economics, 63(5), 2675-2691.
- Samadi, A. H., Hadian, E., Rostamzadeh, P., & Sheikhiani, H. (2019). The Effects of Trade Liberalization on Income Inequality under Resistance Economy: A Computable General Equilibrium Approach (Case Study of Iran). Economics Research, 19(74), 39-80 [In Persian].
- Sangita, S. (2018). India’s exports through the lens of diversification. Changing the Indian Economy, 21-35.
- Song, Y., Paramati, S. R., Ummalla, M., Zakari, A., & Kummitha, H. R. (2021). The effect of remittances and FDI inflows on income distribution in developing economies. Economic Analysis and Policy, 72, 255-267.
- Sun, Q., Hou, M., Shi, S., Cui, L., & Xi, Z. (2022). The influence of country risks on the international agricultural trade patterns based on network analysis and panel data method. Agriculture, 12(3), 361.
- Tang, T., Cuesta, L., Tillaguango, B., Alvarado, R., Rehman, A., Bravo-Benavides, D., & Zárate, N. (2022). Causal link between technological innovation and inequality moderated by public spending, manufacturing, agricultural employment, and export diversification. Sustainability14(14), 8474.
- Tartar, M., Sepehrdoust, H., & Gholizadeh, A. A. (2022). Impact of Economic Complexity and Political, Economic, Financial Risk Shock on Income Gap; Application of PVAR Model. Journal of Economic Modeling Research, 12(45), 7-52 [In Persian].
- Yang, T., Li, H., Zhang, L., & Chen, T. (2022). The impact of city gas on income inequality in China: A regional heterogeneity analysis. Energy Policy, 169, 113203.
- Zare, M.H., & Talayeminaei, A. (2022). The Impact of Export Diversity on Income Distribution: Evidence from Selected Developing Countries. Commercial Surveys [In Persian].
- Zheng, Z. (2020). Inflation and income inequality in a Schumpeterian economy with menu costs. Economics Letters186, 108524.