Natural resource abundance and income inequality: a case study of Algeria

Abstract

Purpose This study aims to present an empirical investigation on the effect of natural resource rent on income inequality in Algeria over the period 1980–2020. Design/methodology/approach The analysis is carried out by using the novel developed method dynamic autoregressive distributed lag (ARDL) simulation technique alongside the Kernel-based regularized least squares. Findings The bounds test revealed a long-run relationship between natural resource rent and income inequality. Our estimation results suggest that natural resource rent, GDP per capita and government expenditures are all associated with lower income inequality in the short and long term. Moreover, the author found that better institutional quality is more likely to reduce income inequality in Algeria. This empirical finding is further validated by the counterfactual shocks from the dynamic ARDL simulation, which reveal a significant decrease in predicted income inequality following a positive change in resource rents and a gradual, significant increase in inequality after a negative change in resource rents. Originality/value The present study is the first to use the dynamic ARDL model to investigate the impact of positive and negative changes in natural resource rent on income inequality in Algeria.