Resource Curse, Rent-Seeking, and Income Inequality in Oil Rich Countries

Weak economic performance that has been observed in countries with rich natural resources is called resource curse. There have been many studies on resource curse, especially the adverse effects of this phenomenon on economic growth. Income inequality or unfair distribution of income is one of the main characteristics of resource rich countries. But, there has not been much research on the effect of resource curse on income inequality. The focus of this study is on the countries that are rich in oil and empirical study has been done for 16 countries. The purpose of this research is an analysis of the effect of oil incomes on income inequality for these countries. We find that oil incomes have reduced income inequality in countries with better governance. Rent-seeking could explain the adverse effect of oil incomes on income inequality. Our empirical results are consistent with this contention, because the index of rent-seeking has an adverse and significant effect on income distribution as measured by Gini coefficient.