The interplay of economic complexity, financial development, and income inequality in Asia

Abstract This study delves into the intricate relationships between economic complexity, financial development, and income inequality in 32 Asian countries during 1995–2022, employing both ordinary least squares (OLS) regression and quantile regression methods. Our analysis reveals that the impact of economic complexity and financial development on income inequality is more nuanced than previously thought, varying significantly across different quantiles of the income distribution. The findings suggest that economic complexity has a heterogeneous effect on income inequality, reducing it at lower quantiles but exacerbating it at higher quantiles. This implies that economic complexity may benefit the poor and middle class but worsen income disparities among the wealthy. In contrast, financial development exhibits a more consistent negative relationship with income inequality across quantiles, indicating that it can be an effective tool for reducing income disparities. The study's results have significant policy implications, highlighting the need for tailored strategies that account for the complex interplay between economic complexity, financial development, and income inequality. By understanding these relationships, policymakers can design more effective interventions to address income inequality and promote inclusive economic growth in Asia.