The study of Economic Complexity and GDP Effect on Inflation Rate and Income Inequality in Persian Gulf States 2002-2015

Received Oct 4th, 2018 Revised Nov 13th, 2018 Accepted Dec 8th, 2018 The purpose of this study was to examine the effect of economic complexity and gross domestic product (GDP) on inflation rate and income inequality between 2002 and 2015. The statistical population of this research is Persian Gulf states, and independent variables are economic complexity and GDP and dependent variables are inflation rate and income inequality. The present research is an applied research and is essentially a descriptive research, and also in terms of methodology, it is considered as a correlational research. The theoretical literature and subjective history and research data collection had been done using library method and document mining method, respectively. Descriptive and inferential statistics have been used to describe and summarize the collected data. Firstly, variance heterogeneity pre-tests, F lemmer test, Hausman test and Jarque-Bera test were used to for analyzing data and then multivariate regression test and Eviews software were used to confirm and reject the research hypotheses. The results of the research show that economic complexity and GDP have a positive and significant effect on inflation rate, while economic complexity and GDP have a negative effect on income inequality. Keyword:


Introduction
In the standard approach to economic growth and development, all products of a country are limited to three factors of gross domestic product, labor and capital (regardless of their complexity).The complexity and diversity of a country's products has the emergence of information diversity, capability to produce products and potential manufacturing productions.Complicated products are produced principally with different skills and different technical information provided by labor forces or automatic machines.Rich countries produce variety of products, especially complicated ones, while poor countries provide less and simpler products, and in fact, the number and variety of products that a country can produces will determines the development of a country.The economic complexity index measures the amount of knowledge -based technology of the country.Economic technology is reflected in products produced, and the products represent economic technology of a country.This research introduces various methods of econometrics and scientific networks and economic complexity as an important factor affecting inequality of income and inflation rate which are considered as negative predictors of the economy in a country.Moreover, it is expected that this would be a strong relationship to control total income of the firms and export revenue, which is equal to the average Gini coefficient of the countries exporting their products [1].
On the one hand, the importance of economic complexity cannot be limited to the ability to apply knowledge in production process and has much more dimensions.The more diversified and also including more complicated export portfolio of a country, more power is in international economic interactions or , in other words, it is more resilient.In opposition, if the export portfolio of a country is more limited and its goods be more generalized, it would be more fragile in trade exchanges and, in other words, has less economic resistance [2].Gross domestic product (GDP) is also one of the most important and most effective words in economic policy context, which means the total monetary value of the finished goods and services produced in a given year in a country.The Iranian economy has faced with government variation and different situations in recent years, in which the dramatic decline in the country's economic growth has been obvious, and we have seen a negative growth in various sectors dependent on GDP.Regarding inflation rate and its importance, it should be said that mobilizing resources and allocating them to productive investment have led to increase capital stock by increasing productivity of the economy as a whole, and ultimately higher economic growth.Accordingly, various strategies, policies and programs have been developed and implemented; but, on the other hand, knowing that the effectiveness of financial market development on economic growth has been focused in this research, so this study aims to assess the effects and measurement of economic complexity, its effects on inflation rate and distribution of income in the society as well as income inequality, so that by presenting a specific model, it can be bolded the importance of economic complexity role in the economy of Iran and make a comparison with the Persian Gulf states.

Theoretical fundamentals and background
The research literature referred to the research by [3], which describes an inverted U-shaped relationship between average income level of a country and its inequality income inequality.The Kuznets curve states that by the development of economics, market forces initially increase and subsequently reduce income inequality.However, it is difficult to confirm the Kuznets curve.If several Latin American countries exclude from the sample, Kuznets's predicted inverted U-shaped relationship would be failed [4].In recent decades, the ascending part of Kuznets curve has been eliminated due to increasing inequality in many low-income countries [5].The experimental defect of Kuznets curve is consistent with one of the recent studies that argues inequality depends not only on the speed or stage of a country's growth, but also on the type of growth and its institutions [6].Therefore, it should be expected that economic development indexes (such as those focusing on development of products that are exported by a country) have more information about the link between economic development and income inequality, which is beyond overall output limitations, such as GDP.Understanding the determinants of income inequality is not the case, since income inequality depends on variety of factors, including factors such as economy, geography, institutions and social capital [7,8], history, technological changes, and returns on capital [9].The expertise of postcolonial economies in a few number of agricultural or mineral products, such as sugar, gold and coffee, increases the unequal distribution of political power, human capital, and wealth [6], and hence their production structures provide indirect information In terms of geography, human capital and their institutions.On the contrary, complex products such as medical imaging devices or electronic components are usually produced in diverse economies with inclusive institutions and high levels of human capital.This means that the presence of complex industries in the economy can, in addition to showing participation of all economic entities, reflects the knowledge created in a population [10].

Research hypotheses
Given that research title and theoretical framework presented, the research hypotheses are presented as follow: H1 -economic complexity has a positive and significant effect on inflation rate.
H2 -GDP has a positive and significant effect on inflation rate.

H3
-economic complexity has a negative and significant effect on income inequality.
H4 -GDP has a negative and significant effect on income inequality.

Research Methodology
This study is a correlational research in terms of nature and an applied research [11][12][13][14], in terms of the purpose of the study.Data collection was done using library method and document mining method, which required data from reliable sources such as published forms and financial reports from the World Bank and Economic Atlas.

Statistical population and sample selection
The statistical population of this study is the Persian Gulf states in the time period from 2002 to 2015, from which Iran has been selected as a sample for testing statistical hypotheses [15].

Model and research variables
In this research, the regression model ( 1 The following is a method for measuring research variables:

Dependent variable
a. Inflation Rate (IF): Based on the global standards, the reference for calculation and declaration of inflation rate is the central bank, and in Central Bank of Iran, the Bureau of Economic Statistics is responsible for this, and information on inflation is extracted directly from the Central Bank site: b. Income Inequality (GINI): Calculated by model ( 4): Where: GINI: Gini coefficient of the country, Y: Cumulative relative frequency of household expenditures, X: cumulative relative frequency of households.

Independent variable
a. Economic complexity (ECI): calculated by the regression model ( 5):

Descriptive statistics of research variables
Before testing the research hypotheses, the variables are summarized in table 1.In table 1, the mean, which represents equilibrium point and distribution center, and also is a good indicator of the centrality of data, equals to 28.07 and 4.20 for the variables of income inequality and inflation rate, respectively.The median, which is another central index, shows that half of the data is less this and another half is more than this value.Also, uniformity of the mean and median values indicates that this variable is normal which equals to 28.5 and 1.4 for income inequality And inflation rate variables, respectively.Dispersion indexes are a measure of how much data are dispersed from each other or their dispersion related to the mean.Standard deviation is one of the most important dispersion indexers which equals to .27 and 1.91 for income inequality and inflation rate variables, respectively.Amount of asymmetry in the curve is called Skewness , and the value of the Skewness coefficient for both variables is negative and close to zero, which indicates that the distribution is normal and very little skewed to the left.The dispersion index of tension or bursting in the curve is called Kurtosis, which in this research is positive for all the Kurtosis variables.

Durability test of research variables
In this research, we used unit root tests for variables and first order difference, which are presented in table 2: Based on the values presented in table 2, significance level of the unit root test in all variables is less than 0.05 and indicates that they are in power of zero and at the level of durable.This means that the mean and variance of the variables are constant between 2002 and 2015 and shows reliability of the variables.

Correlational test of research variables
The results of the correlational test on independent research variables are presented in table 3:

Variance heterogeneity test
In this research, the assumption of residuals variance heterogeneity has been investigated through the Arch test and the results of which are presented in table 4: Based on the values presented in table 4, significance level of F statistic is more than 5%, so the research hypothesis based on the existence of variance homogeneity in the research models is accepted.

F Lemmer and Hausman test
The results from F lemmer and Hausman test for the model of the first, second, third, and fourth hypotheses are given in table 5: In table 5, the panel data method is accepted for the model of first, second, third, and fourth hypotheses.The panel data method can be done by using two models of random effects and constant effects and Hausman test can be used to select them.According to the first, second, third, and fourth hypothesis models, the chi-square test probability is less than 5%.Therefore, the constant effects are used to estimate and analyzing first, second, third and fourth hypotheses models.H2 -GDP has a positive and significant effect on inflation rate.

Summary of research hypotheses analysis
The results from the first and second hypotheses of this study are described in table 6.In table 6, the probability of t-statistic for constant coefficient and coefficients of economic complexity, GDP, political stability, government efficiency and corruption control variables on inflation rate is less than 5%.Therefore, the above relationship is statistically significant and estimated coefficient for economic complexity and gross domestic product variables is positive and significant on inflation rate.The adjusted determination coefficient shows the explanatory power of independent variables, which can explain 69 percent of variations from dependent variable.The probability of the F statistic shows that the whole model is statistically significant.According to research hypotheses, since the coefficient of economic complexity and gross domestic product variables in the model is positive and meaningful on inflation rate, so the zero assumption is rejected for the first and second hypotheses; that is, the economic complexity and the GDP have positive and significant effect on Inflation.H3: Economic complexity has a negative and significant effect on income inequality H4: GDP has a negative and significant effect on income inequality.
The results from the third and fourth hypotheses in this study are described in table 7.In table 7, the probability of t-statistic for constant coefficient and coefficients of economic complexity, GDP, political stability variables on inflation rate is less than 5%.Therefore, the above relationship is statistically significant and estimated coefficient for economic complexity and gross domestic product variables is negative and significant on inflation rate and probability of t-statistic for government efficiency and control corruption variables on inflation rate is more than 5%.Therefore, by 95% reliability, this variable is meaningless in the regression model.The adjusted determination coefficient shows the explanatory power of independent variables that explicitly explains 75% of variations in the dependent variable.The probability of the F-statistic is that whole model is statistically significant.According to the hypothesis, since the coefficient of economic complexity and GDP variables on income inequality in model is in meaningful and negative, so the zero assumption is rejected for the third and fourth hypotheses; that is, the of the economic complexity and GDP have a negative and significant effect on income inequality.

Discussion and Conclusions
This study aims to find the effect of economic complexity and GDP on inflation rate and income inequality.According to the results from research hypotheses, economic complexity and GDP have a positive and significant effect on inflation rate, and also the economic complexity and GDP has a negative and significant effect on income inequality.The results obtained in this study are consistent with the documents referred to in theoretical framework of financial research and literature.Being at high inflation rates by Iranian economy suggests that economic indexes can play a decisive role in creating growth and economic development.However, even with increasing GDP, negative effects of inflation continue to be exist; based on this, economic policymakers are expected to use economic tools that are considered the most important factor to growth in today's world, first of all, to control inflation As a result of which they will be able to generate good economic growth before developing financial markets.Several years ago, Simon Kuznets (1955) described an inverted U-shaped relationship between the average income level of a country and its income inequality.Kuznets's curve suggests that with the development of economics, market forces first increase and then reduce income inequality.However, if several Latin American countries are excluded from the sample, the predicted inverted U-shaped relationship by Kuznets will be failed.In recent decades, the ascending part of Kuznets curve has been eliminated due to increasing inequality in many Low-income countries.In addition, many Eastern-Asian economies have grown from low-income countries to middle-income countries, while at the same time they have reduced income inequality.In general, with these findings, one can question the power and stability of the Kuznets curve, and reaffirm that GDP per capita is an adequate measure of economic development in terms of explaining changes in income inequality.

Research recommendations 7.2 Recommendations based on the research findings
Based on the results, there are some recommendations based on the findings of each hypothesis.According to the results of the first hypothesis and positive effect of economic complexity index on inflation rate in the group of countries under this study, it seems that the implementation of appropriate policies by policy makers and Economic planners, such as reducing the volume of state-owned enterprise will guarantee strengthening domestic production capacity by utilizing efficient production factors, increasing productivity of production factors and using advanced technologies, as well as reducing capital flight, controlling inflation, reducing political instability and, as a result, non-exacerbated inflation.
According the results from the second hypothesis, GDP has a positive and significant effect on inflation rate; therefore, since boosting increase of GDP alone and without considering increase in productivity, Therefore , among the factors influencing on increase in this rate, policies that lead to increasing the demand side should be considered, because based on the pushing approach in Keynesian model of hypotheses, it is assumed that the demand side determines the product and according to it , effect of nominal decrease money value will be positive on product and employment.On the other hand, monetary and fiscal policies should be adopted in a way that reduces the gap between GDP in recovery periods and reduces impact of inflation rate by reducing production gaps.
According to the results from the third hypothesis, economic complexity has a negative and significant effect on income inequality; therefore, one of the factors that increase the gap in income is reduction of economic complexity and the application of appropriate monetary and financial policies (controlling and regulating the rate of liquidity growth and Government budget) to control and reduce economic complexity of current society needs.finally, in order to slow down the income growing gap in short term, the income(cost) gap must be taken into account by choosing strategies to increase economic complexity; in other words, by using labor-consuming technologies, instead of capital-consuming ones, increasing trend of income(cost) gap has been somewhat controlled and revised.
According to the results from the fourth hypothesis, GDP has a negative and significant effect on income inequality; therefore, since some of the problems in the country are expected to be pursued by new government in a more stable macroeconomic policy, its result will be changing direction in the rate of economic growth from negative to positive in future.In these circumstances, given the structure of Iranian economy (low levels of production in country), it is expected that inequality will decrease in the following years, so first, it should be considered that in outlining economic goals of the country , achieving high economic growth rates along with decreasing Gini coefficient will lead to a reduction in income inequality.

Recommendations for future research
Researchers are encouraged to explore the following topics in their future research:

1 )
) was used to study first and second hypotheses of the research: IF = α0 + β1 ECI + β2 GDP + β3 Political stability + β4 Government efficiency +β5 Control corruption + εi (And the regression model (2) has been used to study third and fourth hypotheses: GINI = α0 + β1 ECI + β2 GDP + β3 Political stability + β4 Government efficiency +β5 Control corruption + Domestic Products (GDP): Calculated by the regression model (6private expenditures, G: total government expenditure, I: Total investments in the country, NX: net export that can be calculated from the difference in exports and imports.

4. 2 . 3
Control variables a. Political stability: this index has been calculated Based on the questionnaire developed by NGOs and completed by people of these countries.b.Government efficiency: this index has been calculated Based on the questionnaire developed by NGOs and completed by people of these countries.c.Control corruption: This index has been calculated based on questionnaires developed by NGOs and completed by people of these countries.