Does Inequality Drive the Dutch Disease? : Theory and Evidence

In this paper we show that the Dutch disease can arise solely from inequality in the distribution of natural resource rents. Given two otherwise identical countries that differ only in the ownership shares of the natural resource rents, the country with the less equal distribution will have less pro...

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Main Authors:	Behzadan, Nazanin, Chisik, Richard, Onder, Harun, Battaile, Bill
Format:	Journal Article
Published:	Elsevier 2018
Subjects:	INEQUALITY DUTCH DISEASE NATURAL RESOURCES DISTRIBUTIONAL IMPACT
Online Access:	http://hdl.handle.net/10986/29319

id	okr-10986-29319
recordtype	oai_dc
spelling	okr-10986-293192021-05-25T10:54:43Z Does Inequality Drive the Dutch Disease? : Theory and Evidence Behzadan, Nazanin Chisik, Richard Onder, Harun Battaile, Bill INEQUALITY DUTCH DISEASE NATURAL RESOURCES DISTRIBUTIONAL IMPACT In this paper we show that the Dutch disease can arise solely from inequality in the distribution of natural resource rents. Given two otherwise identical countries that differ only in the ownership shares of the natural resource rents, the country with the less equal distribution will have less production of manufacturing goods and less development of learning-by-doing in this sector. As opposed to conventional models, where income distribution has no effect on economic outcomes, an unequal distribution of the resource wealth can generate the Dutch disease dynamics even in countries with an initial comparative advantage in manufacturing. We also provide a range of empirical tests of our model, including both difference and system GMM estimators in a dynamic panel. To disentangle the effects of inequality and institutional quality we purge our inequality measure of any linear or higher order correlations with institutional quality and repeat our system and difference GMM estimations. Our empirical analysis supports the hypothesis that inequality indeed plays a significant role in whether being resource-rich is a blessing or a curse for a country. The more unequal is the distribution of natural resource rents, the stronger is the disease. 2018-02-05T21:07:30Z 2018-02-05T21:07:30Z 2017-05 Journal Article Journal of International Economics 0022-1996 http://hdl.handle.net/10986/29319 CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Elsevier Publications & Research :: Journal Article Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
topic	INEQUALITY DUTCH DISEASE NATURAL RESOURCES DISTRIBUTIONAL IMPACT
spellingShingle	INEQUALITY DUTCH DISEASE NATURAL RESOURCES DISTRIBUTIONAL IMPACT Behzadan, Nazanin Chisik, Richard Onder, Harun Battaile, Bill Does Inequality Drive the Dutch Disease? : Theory and Evidence
description	In this paper we show that the Dutch disease can arise solely from inequality in the distribution of natural resource rents. Given two otherwise identical countries that differ only in the ownership shares of the natural resource rents, the country with the less equal distribution will have less production of manufacturing goods and less development of learning-by-doing in this sector. As opposed to conventional models, where income distribution has no effect on economic outcomes, an unequal distribution of the resource wealth can generate the Dutch disease dynamics even in countries with an initial comparative advantage in manufacturing. We also provide a range of empirical tests of our model, including both difference and system GMM estimators in a dynamic panel. To disentangle the effects of inequality and institutional quality we purge our inequality measure of any linear or higher order correlations with institutional quality and repeat our system and difference GMM estimations. Our empirical analysis supports the hypothesis that inequality indeed plays a significant role in whether being resource-rich is a blessing or a curse for a country. The more unequal is the distribution of natural resource rents, the stronger is the disease.
format	Journal Article
author	Behzadan, Nazanin Chisik, Richard Onder, Harun Battaile, Bill
author_facet	Behzadan, Nazanin Chisik, Richard Onder, Harun Battaile, Bill
author_sort	Behzadan, Nazanin
title	Does Inequality Drive the Dutch Disease? : Theory and Evidence
title_short	Does Inequality Drive the Dutch Disease? : Theory and Evidence
title_full	Does Inequality Drive the Dutch Disease? : Theory and Evidence
title_fullStr	Does Inequality Drive the Dutch Disease? : Theory and Evidence
title_full_unstemmed	Does Inequality Drive the Dutch Disease? : Theory and Evidence
title_sort	does inequality drive the dutch disease? : theory and evidence
publisher	Elsevier
publishDate	2018
url	http://hdl.handle.net/10986/29319
_version_	1764469044710211584

Does Inequality Drive the Dutch Disease? : Theory and Evidence

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