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Inequality and Economic Growth: Do Natural Resources Matter?

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  • Thorvaldur Gylfason
  • Gylfi Zoega

Abstract

This paper is intended to demonstrate, in theory as well as empirically, how increased dependence on natural resources tends to go along with less rapid economic growth and greater inequality in the distribution of income across countries. On the other hand, public policy in support of education can simultaneously enhance equality and growth by raising the return to working in higher technology (that is, nonprimary) industries and thus counter some of the potentially adverse effects of excessive natural resource dependence. Together, these two variables – natural resources and education – can help account for the inverse relationship between inequality and growth observed in cross-country data. Moreover, the analysis highlights the role of public revenue policy. Taxes and fees can be used to reduce the attractiveness of primary-sector employment, lift the marginal productivity of capital in higher technology industries and thus increase the rate of interest and economic growth, while reducing the inequality of income and wealth.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2002/wp-cesifo-2002-04/712.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 712.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_712

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  1. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  2. Garcia-Penalosa, Cecilia, 1995. "The Paradox of Education or the Good Side of Inequality," Oxford Economic Papers, Oxford University Press, vol. 47(2), pages 265-85, April.
  3. Gylfason, Thorvaldur, 2000. "Natural Resources, Education, and Economic Development," CEPR Discussion Papers 2594, C.E.P.R. Discussion Papers.
  4. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1001-1026.
  5. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1998. "Ownership and Growth," CEPR Discussion Papers 1900, C.E.P.R. Discussion Papers.
  6. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  7. Paul, Gilles Saint & Verdier, Thierry, 1996. "Inequality, redistribution and growth: A challenge to the conventional political economy approach," European Economic Review, Elsevier, vol. 40(3-5), pages 719-728, April.
  8. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  9. Saint-Paul, G. & Verdier, T., 1991. "Education, Democracy and growth," DELTA Working Papers 91-27, DELTA (Ecole normale supérieure).
  10. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
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