Does oil drive income inequality? New panel evidence

While most of the literature on natural resources highlights their effect on the growth rate and level of income, this paper shifts the focus toward the distribution of income. Using newly developed dynamic panel co-integration techniques to account for the cross-country heterogeneity, cross-section dependence, and feedback effects in the oil-volatility-inequality nexus, it finds that oil abundance increases human capital investment, improves institutional quality, and hence mitigates income inequality. However, oil volatility has the opposite effects. It accords with the recent trend in the resource curse literature that it is the volatility, rather than the level, of oil that causes the paradox of plenty. The results also shed light on the factors that shape a country's response to its oil richness and volatility and offer policy implications for mitigating detriments associated with oil volatility.