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Natural Resource Booms and Inequality: Theory and Evidence

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  • Benedikt Goderis
  • Samuel W. Malone

Abstract

Surprisingly little is known about the impact of resource booms on income inequality in resource rich countries (Ross, 2007).� This paper develops a simple theory, in the context of a two sector growth model in which learning-by-doing drives growth, to explain the time path of inequality following a resource boom.� Under plausible conditions, we find that income inequality will fall in the short run immediately after a boom, and will then increase steadily over time as the economy grows, until the initial impact of the boom on inequality disappears.� Using panel cointegration methodology for a sample of 90 countries between 1965 and 1999, we test the predictions of the model empirically.� We find strong evidence in support of the theory.� Resource booms, especially mineral booms, lower inequality in the year of the boom.� This effect then gradually diminishes over time until inequality returns to its pre-boom level in the long run.

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File URL: http://hdl.handle.net/10.1111/j.1467-9442.2011.01659.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 113 (2011)
Issue (Month): (06)
Pages: 388-417

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Handle: RePEc:bla:scandj:v:113:y:2011:i::p:388-417

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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