This article is a supplement to my main contribution to the Routledge Handbook of Complexity Economics (2023). On the basis of three recent papers, it presents an unconventional perspective on economic inequality from a statistical physics point of view. One section demonstrates empirical evidence for the exponential distribution of income in 67 countries around the world. The exponential distribution was not familiar to mainstream economists until it was introduced by physicists by analogy with the Boltzmann-Gibbs distribution of energy and subsequently confirmed in empirical data for many countries. Another section reviews the two-class structure of income distribution in the USA. While the exponential law describes the majority of population (the lower class), the top tail of income distribution (the upper class) is characterized by the Pareto power law, and there is no clearly defined middle class in between. As a result, the whole distribution can be very well fitted by using only three parameters. Historical evolution of these parameters and inequality trends are analyzed from 1983 to 2018. Finally, global inequality in energy consumption and CO2 emissions per capita is studied using the empirical data from 1980 to 2017. Global inequality, as measured by the Gini coefficient G, has been decreasing until around 2010, but then saturated at the level G=0.5. The saturation at this level was theoretically predicted on the basis of the maximal entropy principle, well before the slowdown of the global inequality decrease became visible in the data. This effect is attributed to accelerated mixing of the world economy due to globalization, which brings it to the state of maximal entropy and thus results in global economic stagnation. This observation has profound consequences for social and geopolitical stability and the efforts to deal with the climate change.
We consider a number of Artificial Chemistry models for economic activity and what consequences they have for the formation of economic inequality. We are particularly interested in what tax measures are effective in dampening economic inequality. By starting from well-known kinetic exchange models, we examine different scenarios for reducing the tendency of economic activity models to form unequal wealth distribution in equilibrium.
Our computational economic analysis investigates the relationship between inequality, mobility and the financial accumulation process. Extending the baseline model by Levy et al., we characterise the economic process through stylised return structures generating alternative evolutions of income and wealth through time. First, we explore the limited heuristic contribution of one and two factors models comprising one single stock (capital wealth) and one single flow factor (labour) as pure drivers of income and wealth generation and allocation over time. Second, we introduce heuristic modes of t…
Linking Economic Complexity, Institutions and Income Inequality
Macro Connections, The MIT Media Lab（麻省理工学院媒体实验室）；Fraunhofer Center for International Management and Knowledge Economy（弗劳恩霍夫国际管理与知识经济中心）；Chair for Innovation Management und Economics, University of Leipzig（莱比锡大学创新管理与经济学教席）；Department of Computer Science, Universidad de Playa Ancha（阿纳查海滩大学计算机科学系）；Department of Informatics, Universidad Técnica Federico Santa María（费德里科·圣玛丽亚技术大学信息学系）
Recent studies have found evidence of a negative association between economic complexity and inequality at the country level. Moreover, evidence suggests that sophisticated economies tend to outsource products that are less desirable (e.g. in terms of wage and inequality effects), and instead focus on complex products requiring networks of skilled labor and more inclusive institutions. Yet the negative association between economic complexity and inequality on a coarse scale could hide important dynamics at a fine-grained level. Complex economic activities are difficult to develop and tend to c…
For centuries, national economies created wealth by engaging in international trade and production. The resulting international supply networks not only increase wealth for countries, but also create systemic risk: economic shocks, triggered by company failures in one country, may propagate to other countries. Using global supply network data on the firm-level, we present a method to estimate a country's exposure to direct and indirect economic losses caused by the failure of a company in another country. We show the network of systemic risk-flows across the world. We find that rich countries …
Social and political polarization is a significant source of conflict and poor governance in many societies. Thus, understanding its causes has become a priority of scholars across many disciplines. Here we demonstrate that shifts in socialization strategies analogous to political polarization and identity politics can arise as a locally-beneficial response to both rising wealth inequality and economic decline. Adopting a perspective of cultural evolution, we develop a framework to study the emergence of polarization under shifting economic environments. In many contexts, interacting with dive…
This paper investigates the relationships between economic growth, investment in human capital and income equality in Turkey. The conclusion drawn based on the data from the OECD and the World Bank suggests that economic growth can improve income equality depending on the expenditures undertaken by the government. As opposed to the standard view that economic growth and income inequality are positively related, the findings of this paper suggest that other factors such as education and healthcare spending are also driving factors of income inequality in Turkey. The proven positive impact of in…
By borrowing methods from complex system analysis, in this paper we analyze the features of the complex relationship that links the development and the industrialization of a country to economic inequality. In order to do this, we identify industrialization as a combination of a monetary index, the GDP per capita, and a recently introduced measure of the complexity of an economy, the Fitness. At first we explore these relations on a global scale over the time period 1990--2008 focusing on two different dimensions of inequality: the capital share of income and a Theil measure of wage inequality…
This chapter provides new evidence on educational inequality and reviews the literature on the causes and consequences of unequal education. We document large achievement gaps between children from different socio-economic backgrounds, show how patterns of educational inequality vary across countries, time, and generations, and establish a link between educational inequality and social mobility. We interpret this evidence from the perspective of economic models of skill acquisition and investment in human capital. The models account for different channels underlying unequal education and highl…
This is an introductory textbook of the history of economics of inequality for undergraduates and genreral readers. It begins with Adam Smith's critique of Rousseau. The first and second chapters focus on Smith and Karl Marx, in the broad classical tradition of economics, where it is believed that there is an inseparable relationship between production and distribution, economic growth and inequality. Chapters 3 and 4 argue that despite the fact that the founders of the neoclassical school had shown an active interest in social issues, namely worker poverty, the issues of production and distri…
This paper examines the economic consequences of the COVID-19 pandemic to sub-Saharan Africa (SSA) using the historical approach by analyzing the policy responses of the region to past crises and their economic consequences. The study employs the manufacturing-value-added share of GDP as a performance indicator. The analysis shows that wrong policy intervention to past crises, lead the African sub-region into the deplorable economic situation. The study observed that the region leapfrogged prematurely to import substitution, export promotion, and global value chains. Based on these past experi…
The question about fair income inequality has been an important open question in economics and in political philosophy for over two centuries with only qualitative answers such as the ones suggested by Rawls, Nozick, and Dworkin. We provided a quantitative answer recently, for an ideal free-market society, by developing a game-theoretic framework that proved that the ideal inequality is a lognormal distribution of income at equilibrium. In this paper, we develop another approach, using the Nash Bargaining Solution (NBS) framework, which also leads to the same conclusion. Even though the conclu…
This paper examined the economic consequences of the COVID-19 pandemic on sub-Saharan Africa (SSA) using the historical approach and analysing the policy responses of the region to past crises and their economic consequences. The study employed the manufacturing-value-added share of GDP as a performance indicator. The analysis shows that the wrong policy interventions to past crises led the sub-Saharan African sub-region into its deplorable economic situation. The study observed that the region leapfrogged prematurely to import substitution, export promotion, and global value chains. Based on …
Standard macroeconomic models assume that households are rational in the sense that they are perfect utility maximizers, and explain economic dynamics in terms of shocks that drive the economy away from the stead-state. Here we build on a standard macroeconomic model in which a single rational representative household makes a savings decision of how much to consume or invest. In our model households are myopic boundedly rational heterogeneous agents embedded in a social network. From time to time each household updates its savings rate by copying the savings rate of its neighbor with the highe…
The distribution of household income is a central concern of modern economic policy due to its strong influence on life quality. Yet, non-expert audiences are unaware of the relationship between these two factors. To effectively communicate the effect of income inequality on the quality of life and among the strata, we have designed a novel technique for visualizing income distribution and inequality over time by using the U.S. household income microdata from the Current Population Survey. The result is a striking dynamic animation of income distribution over time, drawing public attention and…
Empirical distributions of wealth and income can be reproduced using simplified agent-based models of economic interactions, analogous to microscopic collisions of gas particles. Building upon these models of freely interacting agents, we explore the effect of a segregated economic network in which interactions are restricted to those between agents of similar wealth. Agents on a 2D lattice undergo kinetic exchanges with their nearest neighbours, while continuously switching places to minimize local wealth differences. A spatial concentration of wealth leads to a steady state with increased gl…
Structural Change, Employment, and Inequality in Europe: an Economic Complexity Approach
European Commission, Joint Research Center（欧盟委员会联合研究中心）；Enrico Fermi Research Center（恩里科·费米研究中心）；UNU-MERIT and Maastricht University（联合国大学欧洲社会研究所学术院和马斯特里赫特大学）
We propose a highly schematic economic model in which, in some cases, wage inequalities lead to higher overall social welfare. This is due to the fact that high earners can consume low productivity, non essential products, which allows everybody to remain employed even when the productivity of essential goods is high and producing them does not require everybody to work. We derive a relation between heterogeneities in technologies and the minimum Gini coefficient required to maximize global welfare. Stronger inequalities appear to be economically unjustified. Our model may shed light on the ro…
Economic theory is a mathematically rich field in which there are opportunities for the formal analysis of singularities and catastrophes. This article looks at the historical context of singularities through the work of two eminent Frenchmen around the late 1960s and 1970s. René Thom (1923-2002) was an acclaimed mathematician having received the Fields Medal in 1958, whereas Gérard Debreu (1921-2004) would receive the Nobel Prize in economics in 1983. Both were highly influential within their fields and given the fundamental nature of their work, the potential for cross-fertilisation would se…
In a fast-changing technology-driven era, drafting an implementable strategic roadmap to achieve economic prosperity becomes a real challenge. Although the national and international strategic development plans may vary, they usually target the improvement of the quality of living standards through boosting the national GDP per capita and the creation of decent jobs. There is no doubt that human capacity building, through higher education, is vital to the availability of highly qualified workforce supporting the implementation of the aforementioned strategies. In other words, fulfillment of mo…
Exponential Structure of Income Inequality: Evidence from 67 Countries
Southwest University（西南大学）；Hangzhou Dianzi University（杭州电子科技大学）；University of Electronic Science and Technology of China（电子科技大学）；Xi’an Jiaotong University（西安交通大学）；University of Maryland, College Park（马里兰大学帕克分校）
The form of political polarization where citizens develop strongly negative attitudes towards out-party policies and members has become increasingly prominent across many democracies. Economic hardship and social inequality, as well as inter-group and racial conflict, have been identified as important contributing factors to this phenomenon known as "affective polarization." Such partisan animosities are exacerbated when these interests and identities become aligned with existing party cleavages. In this paper we use a model of cultural evolution to study how these forces combine to generate a…
The UN states that inequalities are determined along with income by other factors - gender, age, origin, ethnicity, disability, sexual orientation, class, and religion. India, since the ancient period, has socio-political stratification that induced socio-economic inequality and continued till now. There have been attempts to reduce socio-economic inequality through policy interventions since the first plan, still there are evidences of social and economic discrimination. This paper examines earning gaps between the forward castes and the traditionally disadvantaged caste workers in the Indian…
Cooperation is fundamental for human prosperity. Blockchain, as a trust machine, is a cooperative institution in cyberspace that supports cooperation through distributed trust with consensus protocols. While studies in computer science focus on fault tolerance problems with consensus algorithms, economic research utilizes incentive designs to analyze agent behaviors. To achieve cooperation on blockchains, emerging interdisciplinary research introduces rationality and game-theoretical solution concepts to study the equilibrium outcomes of various consensus protocols. However, existing studies d…
To design, evaluate and tune policies for all-inclusive human development, the primary requisite is to assess the true state of affairs of the society. Statistical indices like GDP, Gini Coefficients have been developed to accomplish the evaluation of the socio-economic systems. They have remained prevalent in the conventional economic theories but little do they have in the offing regarding true well-being and development of humans. Human Development Index (HDI) and thereafter Inequality-adjusted Human Development Index (IHDI) has been the path changing composite-index having the focus on hum…
Almost a decade on from the launch of Bitcoin, cryptocurrencies continue to generate headlines and intense debate. What started as an underground experiment by a rag tag group of programmers armed with a Libertarian manifesto has now resulted in a thriving $230 billion ecosystem, with constant on-going innovation. Scholars and researchers alike are realizing that cryptocurrencies are far more than mere technical innovation; they represent a distinct and revolutionary new economic paradigm tending towards decentralization. Unfortunately, this bold new universe is little explored from the perspe…
Across income groups and countries, individual citizens perceive economic inequality spectacularly wrong. These misperceptions have far-reaching consequences, as it is perceived inequality, not actualinequality informing redistributive preferences. The prevalence of this phenomenon is independent of social class and welfare regime, which suggests the existence of a common mechanism behind public perceptions. The literature has identified several stylised facts on how individual perceptions respond to actual inequality and how these biases vary systematically along the income distribution. We p…
