Oil booms and inequality in Iran

We study the response of income inequality to positive per capita oil and gas revenue shocks in Iran. Using historical data from 1973 to 2016 and vector autoregression (VAR) as well as vector error correction (VECM) model‐based impulse‐response functions, we find a positive and statistically significant response of income inequality to oil booms. We also explore possible channels through which oil booms may increase inequality, including private sector credit growth, construction investment, international trade (imports) and real economic output. We find that following an oil boom, higher imports, private sector credit growth, and real economic output can explain the increased income gap to a certain degree in Iran's oil‐based economy. Our analysis can help policymakers evaluate and accommodate the possible positive or negative effects of inequality in Iran resulting from the 2016 lifting of the embargo against the country.     

Does income inequality really matter for credit booms?

This paper addresses the question whether income inequality is associated with credit booms, alongside other macroeconomic factors. We distinguish between the different types of credit booms—real estate credit booms, household credit booms, firm credit booms and credit booms that turn into crises. Furthermore, our analysis of a sample of 70 countries between 1990 and 2016 does not provide any evidence of credit booms driving income inequality. We observe that capital inflows increase the likelihood of credit boom occurrence, while countries experiencing high economic growth tend to have more credit booms. Finally, we note that credit booms are more frequent in countries with fixed exchange rate regimes.     

Distributional Consequences of Commodity Price Shocks: Australia Over A Century

This paper studies the distributional impact of commodity price shocks over the short and the very long run. Using a GARCH model, we find that Australia experienced more volatility than many commodity exporting developing countries over the periods 1865–1940 and 1960–2008. We conduct cointegration tests to assess the commodity price shock inequality nexus. A single equation error correction model suggests that commodity price shocks increase the income share of the top 1, 0.05, and 0.01 percent in the short run. The very top end of the income distribution benefits from commodity booms disproportionately more than the rest of the society. The short run effect is mainly driven by wool and mining and not agricultural commodities. A sustained increase in the price of renewables (wool) reduces inequality whereas the same for non‐renewable resources (minerals) increases inequality. We expect that the initial distribution of land and mineral resources explains the asymmetric result.     

The Dynamic Effects of the US Productivity Boom on Australia*

How has the USA's ‘new economy’ productivity boom affected Australia? We consider this question using a dynamic multisector growth model of the Australian and US economies. We find that productivity growth in the US durables sector generates small but important gains to Australia. We find that the transmission of growth is generated through increased export demand for agriculture. Consequently, the USA's productivity growth tends to favour Australia's traditional export sectors. Likewise, it increases the relative demand for less skilled labour in Australia and reduces the demand for more skilled labour and higher education.     

Gender,entrepreneurship and food security in Niger

In many African countries, the income generated from the informal sector and the entrepreneurship is particularly important for reducing poverty. Previous studies have not found clear evidence on the relationship between self‐employment by gender and food security. We argue that this may be a result of the gender inequality in resource accessibility. In this paper, we analyze the implication of household entrepreneurship on food security in Niger, where gender disparities in resource accessibility are reduced. We find that owning female‐managed non‐agricultural enterprises is positively related to food accessibility and food availability within female‐headed households. The results draw the attention on reducing gender differences in resource accessibility in entrepreneurship for improving food security.     

Has the Canadian labour market polarized?

We use Census and Labour Force Survey (LFS) data for the period from 1971 to 2012 to investigate whether the Canadian wage and employment structures have polarized, that is, whether wages and employment have grown more in high‐ and low‐ than in middle‐paying occupations. We find that there has been faster growth in employment in both high‐ and low‐paying occupations than those in the middle since 1981. However, up to 2005, the wage pattern reflects a simple increase in inequality with greater growth in high‐paid than middle‐paid occupations and greater growth in middle than low‐paid occupations. Since 2005, there has been some polarization but this is present only in some parts of the country and seems to be related more to the resource boom than technological change. We present results for the US to provide a benchmark. The Canadian patterns fit with those in the US and other countries apart from the 1990s when the US undergoes wage polarization not seen elsewhere. We argue that the Canadian data do not fit with the standard technological change model of polarization developed for the US.     

Demographic and Economic Pressure on Emigration out of Africa*

Two of the main forces driving European emigration in the late nineteenth century were real wage gaps between sending and receiving regions and demographic booms in the low‐wage sending regions. Our new estimates of net migration for the countries of sub‐Saharan Africa show that exactly the same forces driving African across‐border migration are at work today. The results suggest that rapid growth in the cohort of potential young emigrants, population pressure on the resource base, and slow economic growth are likely to intensify the pressure for migration out of Africa and into high‐wage OECD countries over the next two decades.     

State‐owned Enterprises,Inequality, and Political Ideology

State‐owned enterprises continue to play a considerable role in many economies. In this study we empirically investigate the connections between these enterprises and inequality as mediated through political ideology. Using cross‐country data on the relative size of the state‐owned enterprise sector, we find strong empirical support for an inverted U‐shaped relationship between its size and income inequality. We also find strong evidence that left‐wing (vis‐a‐vis right‐wing) governments are associated with a larger state‐owned enterprise sector in countries with higher inequality. This result is robust to using cross‐sectional vs. panel data, different identification strategies, and various controls.     

Endogenous institutional change after independence

Independence from colonial rule was a key event for both political and economic reasons. We argue that newly independent countries often inherited sub-optimal institutional arrangements, which the new regimes reacted to in very different ways. We present a model of endogenous changes in property rights institutions where an autocratic post-colonial elite faces a basic trade-off between stronger property rights, which increases the dividends from the modern sector, and weaker property rights that increases the elite's ability to appropriate resource rents. The model predicts that revenue-maximizing regimes in control of an abundance of resource rents and with insignificant interests in the modern sector will rationally install weak institutions of private property, a prediction which we argue is well in line with the experience of several developing countries.     

The Financial Resource Curse*

In this paper, we present a model of the financial resource curse (i.e., episodes of abundant access to foreign capital coupled with weak productivity growth). We study a two‐sector (i.e., tradable and non‐tradable) small open economy. The tradable sector is the engine of growth, and productivity growth is increasing with the amount of labor employed by firms in the tradable sector. A period of large capital inflows, triggered by a fall in the interest rate, is associated with a consumption boom. While the increase in tradable consumption is financed through foreign borrowing, the increase in non‐tradable consumption requires a shift of productive resources toward the non‐tradable sector at the expenses of the tradable sector. The result is stagnant productivity growth. We show that capital controls can be welfare‐enhancing and can be used as a second‐best policy tool to mitigate the misallocation of resources during an episode of financial resource curse.     

Oil Abundance and Income Inequality

The paper empirically investigates the impact of natural resource abundance, in particular oil, on income disparities. It employs common correlated effects pooled mean group methodology for estimation to account for the cross-country heterogeneity and cross-section dependence in the oil-inequality nexus. In a sample of developed and developing countries, we find that oil abundance as well as oil dependence reduce income inequality. This inequality-reducing effect is highly likely to operate from better education attainments and improved health status due to oil booms.     

Impact of oil booms and busts on human capital investment in the USA

This paper uses Census IPUMS data from 1970 to 2000 and ACS data from 2010 to estimate the impact of oil booms and busts on wages and human capital formation in the USA. The paper finds that the oil boom between 1970 and 1980 was associated with a slower growth in the relative demand for skills in the oil and gas sector and regions where the sector had a large presence. The oil boom led to a sharp rise in real wages and a modest decline in college wage premium in oil-rich regions in the USA. Using a synthetic cohort approach, the paper finds that relative to cohorts who went to high school in the pre-oil boom period, the cohort reaching high school age during the oil boom was about 1–2% points less likely to have a college degree by 2000 and 2010.     

Oil,Growth, and Health: What Does the Cross‐Country Evidence Really Show?*

We show that previous results from the body of literature on the resource curse have primarily been driven by the collapse in oil prices during the mid‐1980s. By exploiting cross‐country variations in the size of initial oil endowments and the timing of oil discoveries, we find that there is a stable positive relationship between oil abundance and long‐run economic growth. Using dynamic panel data methods, we also find that there is no evidence that higher oil rents hinder growth. However, to focus on material gain means that the welfare gain from oil is understated, because oil‐rich countries benefit more by the reduction in infant mortality and the gain in longevity. Interestingly, such oil‐led health improvements are more pronounced in non‐democratic countries, where initial heath conditions were poor and oil wealth is concentrated among the ruling elites.     

IDIOSYNCRATIC AND AGGREGATE RISKS,INEQUALITY AND GROWTH

The paper disaggregates productivity shocks at a firm level into idiosyncratic and aggregate risks, and studies their impacts on inequality, growth and welfare. It develops a growth model with human capital and incomplete insurance and credit markets that provides a closed‐form solution for income inequality dynamics. We find that uninsured idiosyncratic risks are the most important determinants of inequality, growth and welfare. They are the source of nondegenerate wealth distribution. A lower weight of these shocks leads to lower steady‐state inequality, higher growth and welfare. A redistribution of income that serves as social insurance against such risks increases welfare and decreases inequality. But, it also decreases growth by distorting individual consumption and saving decisions.     

Genetic distance,economic growth and top income shares: Evidence from OECD countries

The relationship between economic growth and income inequality remains a puzzle in the literature. The main problem has been finding a way to account for the endogeneity of growth. Using century-long data of 14 OECD countries, this study disentangles the growth–inequality relationship. In doing so, our main contribution is employing genetic and geographical distances as instruments for economic growth. The instruments are constructed on the premise that the growth of one country spills over to the others if they are connected through trade and other forms of exchange; however, the genetic and geographical distances between countries represent barriers to such spillovers. Using alternative specifications and measures, we find that growth reduces the inequality measured by top income shares. As capital share increases in the growth process and capital substitutes labour, inequality-reducing strength of growth declines. Another important finding is that the effect of growth on top income shares is more significant among the highest income groups.     

Inequality, corruption and the informal sector

The marginal impact of corruption on income inequality is shown to be a linear function of the size of the informal sector. This implies that anti-corruption policies alone are unlikely to reduce inequality in countries with a large informal sector.     

Inequality and growth: What comes from the different inequality measures?

The objective of the paper is to verify if income inequality impedes the growth rates in OECD countries in the period of 1990–2014 and to reveal whether the choice of the income inequality measure determines the sign and the strength of the estimated relationship. We use system GMM to estimate parameters of a dynamic panel growth model. The research indicates that income inequality negatively affects economic growth. We also find evidence that various measures of inequality bring the different scale of consequences for economic growth, with measures that give more weight to the middle part of the distribution being the weakest predictor of GDP growth. Simultaneously, we present the test of weak instruments, which helps to explain these differences.     

Income Inequality and Technology Diffusion: Evidence from Developing Countries*

We study the effect of within‐country income inequality on the diffusion of mobile phones using data on market penetration in a sample of developing countries from 1985 to 1998. Mobile phones are an example of international technology, originating in industrialized countries and diffusing worldwide. We find that income inequality, as measured by the income share of the highest earning deciles, has a positive effect on the early diffusion of mobile phones and that the estimated effect becomes greater when a measure of agricultural endowments is used as an instrument. The instrumental variable results are robust to weak instruments. Our findings suggest that the diffusion of new technologies originating from industrialized countries may generate yet another channel that links inequality and development.     

Minimum Wage: Does it Improve Welfare in Thailand?

We study the causal impact of the minimum wage on labor market outcomes, household consumption, inequality and poverty in Thailand by relying on policy variation in minimum wages over time across provinces. We find that minimum‐wage increases have a large and significant impact on the likelihood of working in the uncovered sector among workers with elementary education. However, the impact is very small and insignificant among other labor market groups. In contrast, the minimum wage has large positive effects on the formal sector wages of low‐earning workers, such as the young, elderly and low educated. Increases in the minimum wage are associated with reductions in household poverty and consumption inequality at the bottom half of the distribution.