Natural Resource Booms and Inequality: Theory and Evidence

35 Pages Posted: 16 Sep 2009

See all articles by Benedikt Goderis

Benedikt Goderis

The Netherlands Institute for Social Research|SCP

Samuel W. Malone

University of the Andes

Multiple version iconThere are 2 versions of this paper

Date Written: July 28, 2009

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.

Keywords: resource booms, inequality, Dutch Disease

JEL Classification: O13, O15, F11, Q33

Suggested Citation

Goderis, Benedikt and Malone, Samuel W., Natural Resource Booms and Inequality: Theory and Evidence (July 28, 2009). Available at SSRN: https://ssrn.com/abstract=1473739 or http://dx.doi.org/10.2139/ssrn.1473739

Benedikt Goderis (Contact Author)

The Netherlands Institute for Social Research|SCP ( email )

Rijnstraat 50
The Hague, 2515
Netherlands

Samuel W. Malone

University of the Andes ( email )

Carrera Primera # 18A-12
DC D.C. 110311
Colombia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
89
Abstract Views
770
rank
359,607
PlumX Metrics