Income Inequality and Natural Resources

Abstract: The observation that countries highly endowed with natural resources often struggle with undesirable economic (e.g. low growth) and social problems has produced a large body of literature on the so-called resource curse over the last decades. One possible relationship that has been investigated is, whether resource abundance affects income inequality. This has been scrutinized to a much lesser extent than the effect on growth, and moreover, no agreement has been reached concerning the direction of the effect, given that it exists. This paper uses the Standardized World Income Inequality Database, the largest and probably most comparable dataset of Gini values, to determine the effect of resource abundance on income inequality. It dinstinguishes between a pure effect of resource abundance and an effect of resource intensity/dependence, a differentiation that has probably not received enough attention in the empirical resource curse literature in general. I examine whether resource abundance or resource intensity influences income inequality and whether the effect depends on the quality of institutions, which might turn a resource curse into a resource blessing. I find that neither resource abundance nor resource dependence influences income inequality significantly and that there is no effect of natural resouces that depends on the level of institutional quality.