Do Oil Rents Increase Income Inequality? Evidences From Selected Countries

It is undoubtedly expected that an increase in natural resource revenues will alter a country's socio-economic balance. The presence of rapidly growing sectors on one hand, and sectors in decline on the other, makes this situation inevitable. The most prominent consequence of this situation is the change in income distribution. In recent years, the relationship between oil revenues and income inequality has gained increasing importance. In this context, insights and evidence obtained regarding the effects of oil revenues on income inequality are of great value. The aim of this study is to reveal how oil revenues affected income inequality in İran, Kazakhstan and Russian country with rich oil resources, between 1995 and 2023. In addition, gross domestic product and urban population rate were used as control variables, and the effect of these factors on income inequality was investigated. The findings obtained from the fixed effects model estimated with Driscoll-Kraay standard errors indicate that an increase in oil rents exacerbates income inequality, whereas growth in gross domestic product and the urban population tends to reduce it. When oil revenues increase by 1 percent, income inequality increases by 0.042 percent, while a 1 percent increase in gross domestic product reduces income inequality by 0.122 percent, and a 1 percent increase in the urban population reduces income inequality by 0.651 percent. The findings of this study suggest that urbanization is the most potent dynamic in reducing income inequality.