IDEAS home Printed from https://ideas.repec.org/p/mar/magkse/201733.html
   My bibliography  Save this paper

The response of income inequality to positive oil rents shocks in Iran: Implications for the post-sanction period

Author

Listed:
  • Mohammad Reza Farzanegan

    (Philipps-Universität Marburg)

  • Tim Krieger

    (Albert-Ludwigs-Universität Freiburg)

Abstract

We study the short and long run responses of income inequality to the positive oil and gas rents per capita shocks in Iran from 1973 to 2012. Using vector autoregression (VAR)-based impulse response functions, we find a positive and statistically significant response of income inequality to oil rents booms within 4 years after the shock. The Autoregressive-Distributed Lag (ARDL) results show that a 10 percent increase in oil and gas rents per capita leads to 1.1 percent increase in income inequality in the long run. The results are robust after controlling for income-distribution channels in Iran. Our analysis can help policy makers to evaluate and accommodate the possible positive or negative effects of lifting sanctions on inequalities in Iran.

Suggested Citation

  • Mohammad Reza Farzanegan & Tim Krieger, 2017. "The response of income inequality to positive oil rents shocks in Iran: Implications for the post-sanction period," MAGKS Papers on Economics 201733, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201733
    as

    Download full text from publisher

    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2017/33-2017_farzanegan.pdf
    File Function: First 201733
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2006. "Institutions and the Resource Curse," Economic Journal, Royal Economic Society, vol. 116(508), pages 1-20, January.
    2. Krieger, Tim & Meierrieks, Daniel, 2016. "Political capitalism: The interaction between income inequality, economic freedom and democracy," European Journal of Political Economy, Elsevier, vol. 45(C), pages 115-132.
    3. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Sources of Slow Growth in African Economies," Journal of African Economies, Centre for the Study of African Economies, vol. 6(3), pages 335-376, October.
    4. MacCulloch, Robert, 2005. "Income Inequality and the Taste for Revolution," Journal of Law and Economics, University of Chicago Press, vol. 48(1), pages 93-123, April.
    5. Philippe Aghion, 2005. "Growth and Institutions," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 32(1), pages 3-18, March.
    6. Mohammad Reza Farzanegan, 2014. "Military Spending and Economic Growth: The Case of Iran," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(3), pages 247-269, June.
    7. Holcombe,Randall G., 2018. "Political Capitalism," Cambridge Books, Cambridge University Press, number 9781108449908.
    8. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
    9. Howie, Peter & Atakhanova, Zauresh, 2014. "Resource boom and inequality: Kazakhstan as a case study," Resources Policy, Elsevier, vol. 39(C), pages 71-79.
    10. R.G. Gregory, 1976. "Some Implications Of The Growth Of The Mineral Sector," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 20(2), pages 71-91, August.
    11. Davis, Graham A. & Vásquez Cordano, Arturo L., 2013. "The fate of the poor in growing mineral and energy economies," Resources Policy, Elsevier, vol. 38(2), pages 138-151.
    12. Kawachi, Ichiro & Kennedy, Bruce P. & Wilkinson, Richard G., 1999. "Crime: social disorganization and relative deprivation," Social Science & Medicine, Elsevier, vol. 48(6), pages 719-731, March.
    13. Farzanegan, Mohammad Reza & Raeisian Parvari, Mozhgan, 2014. "Iranian-Oil-Free Zone and international oil prices," Energy Economics, Elsevier, vol. 45(C), pages 364-372.
    14. Carmignani, Fabrizio, 2013. "Development outcomes, resource abundance, and the transmission through inequality," Resource and Energy Economics, Elsevier, vol. 35(3), pages 412-428.
    15. Daron Acemoglu & James A. Robinson, 2008. "Persistence of Power, Elites, and Institutions," American Economic Review, American Economic Association, vol. 98(1), pages 267-293, March.
    16. Sajjad F. Dizaji & Mohammad Reza Farzanegan & Alireza Naghavi, 2016. "Political institutions and government spending behavior: theory and evidence from Iran," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 522-549, June.
    17. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    18. Vladimir Gimpelson & Daniel Treisman, 2018. "Misperceiving inequality," Economics and Politics, Wiley Blackwell, vol. 30(1), pages 27-54, March.
    19. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    20. Tim Krieger & Daniel Meierrieks, 2016. "Does Income Inequality Lead to Terrorism?," CESifo Working Paper Series 5821, CESifo.
    21. Thorbecke, Erik & Charumilind, Chutatong, 2002. "Economic Inequality and Its Socioeconomic Impact," World Development, Elsevier, vol. 30(9), pages 1477-1495, September.
    22. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, Decembrie.
    23. Sambit Bhattacharyya & Jeffrey Williamson, 2013. "Distributional Impact of Commodity Price Shocks: Australia over a Century," CEH Discussion Papers 019, Centre for Economic History, Research School of Economics, Australian National University.
    24. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
    25. Benedikt Goderis & Samuel W. Malone, 2011. "Natural Resource Booms and Inequality: Theory and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(2), pages 388-417, June.
    26. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    27. Akbar E. Torbat, 2005. "Impacts of the US Trade and Financial Sanctions on Iran," The World Economy, Wiley Blackwell, vol. 28(3), pages 407-434, March.
    28. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    29. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January.
    30. Wilkinson, Richard G. & Pickett, Kate E., 2007. "The problems of relative deprivation: Why some societies do better than others," Social Science & Medicine, Elsevier, vol. 65(9), pages 1965-1978, November.
    31. Bjorvatn Kjetil & Farzanegan Mohammad Reza & Schneider Friedrich, 2013. "Resource Curse and Power Balance: Evidence from Iran," Review of Middle East Economics and Finance, De Gruyter, vol. 9(2), pages 133-158, August.
    32. Sambit Bhattacharyya & Jeffrey G. Williamson, 2016. "Distributional Consequences of Commodity Price Shocks: Australia Over A Century," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(2), pages 223-244, June.
    33. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    34. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
    35. Farzanegan, Mohammad Reza, 2011. "Oil revenue shocks and government spending behavior in Iran," Energy Economics, Elsevier, vol. 33(6), pages 1055-1069.
    36. Edward N. Muller & Erich Weede, 1994. "Theories of Rebellion," Rationality and Society, , vol. 6(1), pages 40-57, January.
    37. Farzanegan, Mohammad Reza & Markwardt, Gunther, 2009. "The effects of oil price shocks on the Iranian economy," Energy Economics, Elsevier, vol. 31(1), pages 134-151, January.
    38. Montalvo, Jose G. & Reynal-Querol, Marta, 2005. "Ethnic diversity and economic development," Journal of Development Economics, Elsevier, vol. 76(2), pages 293-323, April.
    39. Kenneth L. Sokoloff & Stanley L. Engerman, 2000. "Institutions, Factor Endowments, and Paths of Development in the New World," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 217-232, Summer.
    40. Fum, Ruikang Marcus & Hodler, Roland, 2010. "Natural resources and income inequality: The role of ethnic divisions," Economics Letters, Elsevier, vol. 107(3), pages 360-363, June.
    41. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    42. Shlomo Yitzhaki, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(2), pages 321-324.
    43. Mohammad Reza Farzanegan & Gunther Markwardt, 2012. "Pollution, Economic Development and Democracy: Evidence from the MENA countries," MAGKS Papers on Economics 201227, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    44. Daron Acemoglu & James A. Robinson, 2006. "De Facto Political Power and Institutional Persistence," American Economic Review, American Economic Association, vol. 96(2), pages 325-330, May.
    45. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sajjad. F. Dizaji & Mohammad Reza Farzanegan, 2018. "Do sanctions reduce the military spending in Iran?," MAGKS Papers on Economics 201831, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. Mohammad Reza Farzanegan & Hassan F. Gholipour, 2018. "Does Gold Price Matter for Divorce Rate in Iran?," Journal of Family and Economic Issues, Springer, vol. 39(4), pages 588-599, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohammad Reza Farzanegan & Tim Krieger, 2018. "Oil Rents Shocks and Inequality in Iran," CESifo Working Paper Series 6876, CESifo.
    2. Mohammad Reza Farzanegan & Tim Krieger, 2018. "Oil Revenues Shocks and Inequality in Iran," Working Papers 1226, Economic Research Forum, revised 18 Sep 2018.
    3. Mohammad Reza Farzanegan & Mohammad Habibpour, 2014. "Direct Distribution of Rents and the Resource Curse in Iran: A Micro-econometric Analysis," MAGKS Papers on Economics 201425, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    4. Mohammad Reza Farzanegan & Pooya Alaedini & Khayyam Azizimehr, 2017. "Middle Class in Iran: Oil Rents, Modernization, and Political Development," MAGKS Papers on Economics 201756, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. Njangang, Henri & Asongu, Simplice A. & Tadadjeu, Sosson & Nounamo, Yann & Kamguia, Brice, 2022. "Governance in mitigating the effect of oil wealth on wealth inequality: A cross-country analysis of policy thresholds," Resources Policy, Elsevier, vol. 76(C).
    6. Farzanegan, Mohammad Reza & Hassan, Mai & Badreldin, Ahmed Mohamed, 2020. "Economic liberalization in Egypt: A way to reduce the shadow economy?," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 307-327.
    7. Mohammad Reza Farzanegan & Marcel Thum, 2017. "Oil Dependency and Quality of Education: New Empirical Evidence," MAGKS Papers on Economics 201745, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    8. Anne D. Boschini & Jan Pettersson & Jesper Roine, 2007. "Resource Curse or Not: A Question of Appropriability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 593-617, September.
    9. Mohammad Reza Farzanegan & Sajjad Faraji Dizaji, 2014. "Political Institutions and Government Spending Behavior in Iran," MAGKS Papers on Economics 201403, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    10. Collier, Paul & Goderis, Benedikt, 2012. "Commodity prices and growth: An empirical investigation," European Economic Review, Elsevier, vol. 56(6), pages 1241-1260.
    11. Amir Mousavi & Jeremy Clark, 2021. "The effects of natural resources on human capital accumulation: A literature survey," Journal of Economic Surveys, Wiley Blackwell, vol. 35(4), pages 1073-1117, September.
    12. Shahbaz, Muhammad & Naeem, Muhammad & Ahad, Muhammad & Tahir, Iqbal, 2018. "Is natural resource abundance a stimulus for financial development in the USA?," Resources Policy, Elsevier, vol. 55(C), pages 223-232.
    13. Christopher Hartwell & Roman Horvath & Eva Horvathova & Olga Popova, 2022. "Natural resources and income inequality in developed countries: synthetic control method evidence," Empirical Economics, Springer, vol. 62(2), pages 297-338, February.
    14. Antonakakis, Nikolaos & Cunado, Juncal & Filis, George & Gracia, Fernando Perez de, 2017. "Oil dependence, quality of political institutions and economic growth: A panel VAR approach," Resources Policy, Elsevier, vol. 53(C), pages 147-163.
    15. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
    16. Cockx, Lara & Francken, Nathalie, 2016. "Natural resources: A curse on education spending?," Energy Policy, Elsevier, vol. 92(C), pages 394-408.
    17. Mohammad Reza Farzanegan & Mai Hassan, 2017. "The Impact of Economic Globalization on the Shadow Economy in Egypt," CESifo Working Paper Series 6424, CESifo.
    18. Farzanegan, Mohammad Reza & Raeisian Parvari, Mozhgan, 2014. "Iranian-Oil-Free Zone and international oil prices," Energy Economics, Elsevier, vol. 45(C), pages 364-372.
    19. Sajjad F. Dizaji & Mohammad Reza Farzanegan & Alireza Naghavi, 2016. "Political institutions and government spending behavior: theory and evidence from Iran," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 522-549, June.
    20. Dauvin, Magali & Guerreiro, David, 2017. "The Paradox of Plenty: A Meta-Analysis," World Development, Elsevier, vol. 94(C), pages 212-231.

    More about this item

    Keywords

    oil rents; inequality; VAR; ARDL; sanctions; Iran;
    All these keywords.

    JEL classification:

    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mar:magkse:201733. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bernd Hayo (email available below). General contact details of provider: https://edirc.repec.org/data/vamarde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.