Do natural resources lead to a curse or blessing in terms of income inequality?

Abstract

This study examines the effects of the revenues generated by the extraction of natural resource reserves on income distribution in countries with natural resource reserves. The theoretical underpinning is based on the view that natural resources, which are defined in the literature as the natural resources curse, cause many adverse macroeconomic and political effects on countries' natural resource discoveries and revenues from extracted natural resources. The study aims to investigate whether natural resources have adverse effects on income inequality for countries with higher revenues of natural resources and abundant natural resources. For this purpose, we perform estimations using the system GMM estimator for low-income, lower-middle-income and natural resources-rich countries in the period 2009–2019. We find an inverted U-shaped relationship between natural resource rent and income inequality. In other words, natural resource rent has a cursing effect up to a threshold, then it has a blessing effect on income inequality. We also find an inverted U-shaped relationship between economic growth and income inequality. Additionally, the rule of law has a negative effect on income inequality.