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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 inequaility 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. Usng 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 effet then gradually diminishes over time until inequality returns to its pre-boom level in the long run.

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Bibliographic Info

Paper provided by Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 008.

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Date of creation: 2008
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Handle: RePEc:oxf:oxcrwp:008

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Keywords: resource booms; inequality; Dutch disease;

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References

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Citations

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Cited by:
  1. Rabah Arezki & Mustapha K. Nabli, 2012. "Natural Resources, Volatility, and Inclusive Growth: Perspectives from the Middle East and North Africa," CESifo Working Paper Series 3818, CESifo Group Munich.
  2. Paul Segal, 2012. "Natural Resource Wealth and Directed Technical Change," OxCarre Working Papers 088, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  3. Bhattacharyya, Sambit & Williamson, Jeffrey G, 2013. "Distributional Impact of Commodity Price Shocks: Australia over a Century," CEPR Discussion Papers 9582, C.E.P.R. Discussion Papers.
  4. Cockx, Lara & Francken, Nathalie, 2014. "Extending the concept of the resource curse : Natural resources and public spending on health," IOB Working Papers 2014.01, Universiteit Antwerpen, Institute of Development Policy and Management (IOB).
  5. Hamideh Mohtashami Borzadaran & Mehdi Behname & Sayed Mahdi Mostafavi, 2013. "Natural Resources, Openness and Income Inequality in Iran," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(49), pages 3-26, September.
  6. Frederick Van der Ploeg, 2010. "Natural Resources: Curse or Blessing?," CESifo Working Paper Series 3125, CESifo Group Munich.
  7. Howie, Peter & Atakhanova, Zauresh, 2014. "Resource boom and inequality: Kazakhstan as a case study," Resources Policy, Elsevier, vol. 39(C), pages 71-79.
  8. Ruikand Marcus Fum & Roland Hodler, 2009. "Natural Resources and Income Equality: the role of Ethnic divisions," OxCarre Working Papers 023, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  9. 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.
  10. Fabrizio Carmignani, . "Development outcomes, resource abundance,and the transmission through inequality," MRG Discussion Paper Series 3610, School of Economics, University of Queensland, Australia.
  11. Kolstad, Ivar & Wiig, Arne, 2012. "Testing The Pearl Hypothesis: Natural resources and trust," Resources Policy, Elsevier, vol. 37(3), pages 358-367.
  12. Frederick van der Ploeg, 2008. "Challenges and Opportunities for Resource Rich Economies," OxCarre Working Papers 005, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  13. Poelhekke, Steven & van der Ploeg, Frederick, 2010. "Do Natural Resources Attract FDI? Evidence from Non-Stationary Sector-Level Data," CEPR Discussion Papers 8079, C.E.P.R. Discussion Papers.
  14. Marchand, Joseph, 2013. "The Distributional Impacts of an Energy Boom in Western Canada," Working Papers 2013-13, University of Alberta, Department of Economics.

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