Large-sample evidence of income inequality in resource-rich nations
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ORIGINAL PAPER
Large-sample evidence of income inequality in resource-rich nations Graham A. Davis 1 Received: 3 February 2019 / Accepted: 10 October 2019 # Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract It is commonly presumed that economies specializing in mining and oil production have high national income inequality. The research testing this proposition is equivocal, no doubt because of small sample sizes and missing inequality data for the majority of mining and oil economies. This paper makes use of a large sample of income inequality data that is comprehensive in its coverage of mining and oil economies. Mine production is found to cause higher national income inequality on a gross, pre-tax basis and a net, post-tax and post-redistribution basis. Botswana is prime example of a mining economy having both high gross and net income inequality. Oil production, on the other hand, does not cause higher gross or net income inequality. If anything, oil is associated with reduced gross and net income inequality. The mechanism for this difference from mining is not clear. JEL classifications O13 . O15 . Q32 . Q33 . Q3 Keywords Mining . Oil . Gross income inequality . Net income inequality . SWIID
Introduction One of the ways economists provide value to society is through the discovery of trends in noisy data. Such trends allow us to better understand economic phenomena and implement welfare-improving policies where necessary. For resource-based economies, such trends can prepare governments for what is to come and allow them to apply appropriate policy measures in a timely manner. John Tilton has long been fascinated by the resource curse, at first identified through case studies and later empirically confirmed by Sachs and Warner (1997), whereby countries rich in mineral and energy resources tend to grow more slowly in the short run than they would were they barren of resources (Davis and Tilton 2005, 2008; Tilton and Guzmán 2016). Davis (2013) confirmed that Sachs and Warner’s results were replicable and reasonably robust to sample and time period. Why this slower growth occurred was an open question at the
* Graham A. Davis [email protected] 1
Division of Economics and Business, Colorado School of Mines, 1500 Illinois St., Golden, CO 80401, USA
time. John has suggested that corruption may be a contributing factor (Petermann et al. 2007). The deeper question is whether that slower growth would continue in the long run. This required an assessment of whether the slower short-run growth was a result of temporary disadvantages like rent-fueled corruption or long-term structural changes in the economy. Davis (2011) and James (2015) find that the slow growth was most likely a result of a temporarily booming but slow-growing resource sector, a “resource drag.”1 Correspondingly, Alexeev and Conrad (2009) and Smith (2015) find no evidence that resource economies’ long-run growth has been negatively affected.2 One remaining and equally serious concern is that these economies may nevertheless tend t
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