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Natural Resource Booms and Inequality: Theory and Evidence

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Author Info
Goderis, Benedikt
Malone, Samuel W.

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Abstract

Surprisingly little is known about the impact of natural resource booms on income inequality in resource rich countries (Ross, 2007). This paper develops a 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 the condition that the nontraded sector uses unskilled labor more intensively than the traded sector, 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 dynamic panel data estimation for 90 countries between 1965 and 1999, and exploiting variation in world commodity prices to identify resource booms, we find evidence in support of the theory, especially for oil and mineral booms. We also find that uncertainty about future commodity export prices significantly increases long-run inequality.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17317.

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Date of creation: 28 Jul 2009
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Handle: RePEc:pra:mprapa:17317

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Related research
Keywords: Resource Booms; Inequality; Dutch Disease;

Other versions of this item:

Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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