Governance in mitigating the effect of oil wealth on wealth inequality: A cross-country analysis of policy thresholds

Abstract

The study assesses the role of governance in modulating the effect of oil wealth on wealth inequality in 45 countries in the world. The empirical evidence is based on Pooled Ordinary Least Squares and the Generalised Method of Moments. The findings show that oil rents unconditionally increase wealth inequality while govenance dyanmics (in terms of rule of law, corruption-control, government effectiveness, regulatory quality) moderate oil rents for an overall net negative effect on wealth inequality. Good governance thresholds at which the unconditional effect of oil rents on the wealth inequality changes from positive to negative are computed and discussed. It follows that while governance is a necessary condition for improving the redistributive effects of oil wealth, it becomes a sufficient condition for net positive improvements in wealth distribution only when some critical levels of good governance have been reached. Other policy implications are discussed.

Income Inequality in Africa: Exploring the Interaction Between Urbanization and Governance Quality

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Are natural resources also bad for infrastructure quality?

“…A large literature argues that the effect of natural resources on economic development depends on institutions (Apergis & Payne, 2014; Chambers & Munemo, 2019; Mehlum et al, 2006; Njangang et al, 2022). Robinson et al (2006) argue that the effect of natural resources on the economy depends critically on institutions, as these determine the extent to which political incentives are embedded in policy outcomes.…”

“…Since the seminal work of Sachs and Warner (1995, 2001) arguing the detrimental impact of natural resources on economic growth, several studies have analysed the relationship between natural resources and growth, leading to mixed conclusions. Other studies have extended the resource curse hypothesis to various development outcomes, including export diversification (Djimeu & Omgba, 2019), human capital (Mousavi & Clark, 2021), agricultural productivity (Dorinet et al, 2021), wealth inequality (Njangang et al, 2022), entrepreneurship (Munemo, 2022), women's political empowerment (Awoa et al, 2022), economic complexity (Ajide, 2022), access to safe water and sanitation (Tadadjeu et al, 2020, 2022), innovation (Kamguia et al, 2022) and the profitability of public enterprises (Lim & Morris, 2022).…”

Democracy and Lifelong Learning in Africa

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