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Oil Abundance and Income Inequality

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Abstract

The paper empirically investigates the impact of natural resource abundance, in particular oil, on income disparities. It employs common correlated effects pooled mean group methodology for estimation to account for the cross-country heterogeneity and cross-section dependence in the oil-inequality nexus. In a sample of developed and developing countries, we find that oil abundance as well as oil dependence reduce income inequality. This inequality-reducing effect is highly likely to operate from better education attainments and improved health status due to oil booms.

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Notes

  1. CCEMG and CCEPMG have been used to estimate the impact of government debt on economic growth (Eberhardt and Presbitero 2015), oil richness on economic development and growth (Cavalcanti et al. 2011), commodity price volatility on economic growth (Cavalcanti et al. 2015), and trade on economic growth and growth volatility (Kim et al. 2016), among many others.

  2. It is noted that the concept of Granger causality is not equivalent to the notion of causation in the traditional sense of the word. Indeed, no econometric test can prove causation. Granger causality may best be thought of as a test of firstness rather than causation, so that if xGranger causes y then we have evidence that x precedes y. However, evidence in favor of Granger causality is certainly supportive of the notion that x causes y in the traditional sense (Dawson 2003).

  3. Many of the more recent income inequality studies use the EHII Gini coefficient (Meschi and Vivarelli 2009; Gimet and Lagoarde-Segot 2011; Herzer and Vollmer 2012; Bumann and Lensink 2016).

  4. Ideally, we would also like to include the cross-sectional averages of all the variables, but given that this is not possible, as we would run into lack of degrees of freedom, we choose the two variables that we believe are highly dependent across countries in our sample.

  5. The Polity2 index measures a political regime by the polity score, which ranges from – 10 (strongly autocratic) to \(+\,10\) (strongly democratic). This measure reflects the degree of competitiveness in political participation, the openness and competitiveness in the selection of the legislature, and the constitutional constraints on executive powers. It also incorporates subjective information on checks and balances on executive powers, the degree of restrictions on electoral participation, and the extent to which political participation is regulated.

  6. We find qualitatively similar results using oil exports. Our data on public education spending (% GDP), public health spending (% GDP), primary and secondary education enrollments, both total and female (% population), and infant and child mortality are sourced from WDI (2017).

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Authors and Affiliations

  1. Department of Food and Resource Economics, Korea University, 145, Anam-ro, Seongbuk-gu, Seoul, 136-701, Korea

    Dong-Hyeon Kim

  2. Department of Economics, SungKyunKwan University, 25-2, SungKyunKwan-ro, Jongno-gu, Seoul, 03063, Korea

    Shu-Chin Lin

Authors
  1. Dong-Hyeon Kim
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  2. Shu-Chin Lin
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Correspondence to Shu-Chin Lin.

Additional information

We are grateful to Co-Editor, Eric Strobl, and anonymous referees for their very constructive comments and suggestions. The usual disclaimer applies.

Appendix: A Country List and Model Specification Tests

Appendix: A Country List and Model Specification Tests

Table 8 Countries in the sample
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Table 9 Descriptive statistics and tests of cross-section dependence and panel unit roots
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Table 10 Panel cointegration tests
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Table 11 Weak exogeneity tests
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Kim, DH., Lin, SC. Oil Abundance and Income Inequality. Environ Resource Econ 71, 825–848 (2018). https://doi.org/10.1007/s10640-017-0185-9

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