Oil derrick transforming into a money tree, symbolizing the complex relationship between oil and inequality.

Oil and Inequality: Is the Resource Curse Real?

Theo Raines in Business & Economy July 2025 • 4 min read.

"New research challenges the conventional wisdom, revealing complex links between oil wealth and income distribution."

For decades, the 'resource curse' has been a dominant narrative: countries rich in natural resources often struggle with economic instability, corruption, and social strife. But what about income inequality? Does oil wealth automatically translate to a greater divide between the rich and poor? Surprisingly, this link hasn't been thoroughly investigated – until now.

A recent study, using the Standardized World Income Inequality Database (SWIID), dives deep into this complex relationship, challenging some long-held assumptions. The findings reveal a nuanced picture, suggesting that oil wealth doesn't always lead to increased inequality, and, in some cases, can even contribute to a more equitable income distribution.

This article will break down the study's key findings, exploring the surprising ways oil wealth can impact income inequality. We'll also examine the factors that determine whether a country experiences the 'resource curse' or manages to harness its oil wealth for the benefit of all its citizens.

Does Oil Wealth Automatically Mean More Inequality?

Oil derrick transforming into a money tree, symbolizing the complex relationship between oil and inequality.

Conventional wisdom suggests that oil wealth concentrates power and resources in the hands of a few, exacerbating existing inequalities. Oil revenues might benefit political elites or specific geographical regions, leaving the majority of the population behind. This can happen through various mechanisms, including:

However, the new research paints a more complex picture. The study reveals that the relationship between oil and income inequality isn't straightforward. In many cases, oil-rich nations actually exhibit lower income inequality than their resource-poor counterparts. This challenges the notion of an automatic 'resource curse' and suggests other factors are at play.

Rent-seeking behavior: Competition for oil riches can lead to corruption and policies that disproportionately favor specific interest groups.
Neglect of other sectors: An over-reliance on oil can stifle the development of other industries, leading to job losses and economic instability for those not involved in the oil sector.
Limited transparency: Oil-rich governments may lack transparency and accountability, making it easier for elites to capture the benefits of oil wealth.

One potential explanation is that oil revenues provide governments with greater resources to redistribute wealth through social programs, infrastructure development, and other initiatives. These interventions can help to level the playing field and reduce income disparities. However, the study also points out an important caveat: this effect tends to hold true only up to a certain level of oil dependence.

Harnessing Oil Wealth for a More Equitable Future

The research underscores the importance of good governance, transparency, and diversification in oil-rich economies. Countries that manage their oil wealth responsibly, invest in education and healthcare, and promote economic diversification are more likely to avoid the 'resource curse' and create a more equitable society for all their citizens. It also points to a potential for intentional under-reporting of data. Further research into the methods to discover data accurately will be required.

About this Article -

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This article is based on research published under:

DOI-LINK: 10.1016/j.reseneeco.2016.06.001,

Title: Income Inequality And The Oil Resource Curse

Subject: econ.gn q-fin.ec

Authors: Osiris Jorge Parcero, Elissaios Papyrakis

Published: 08-01-2024

Everything You Need To Know

Does being rich in oil always lead to a bigger gap between the rich and poor?

No, the relationship between oil wealth and income inequality isn't a simple one. While it's often assumed that oil wealth increases inequality, research using the Standardized World Income Inequality Database (SWIID) shows that oil-rich nations can sometimes have lower income inequality than countries without oil. The idea that oil wealth automatically translates to a greater divide is challenged by this data. The ‘resource curse’ narrative does not always hold true. The connection is very complex.

What is the 'resource curse,' and how does oil fit into it?

The 'resource curse' is the idea that countries with a lot of natural resources, like oil, often struggle with issues such as economic instability, corruption, and social problems. In the context of oil, the conventional view suggests that oil wealth concentrates power and resources in the hands of a few, leading to more inequality through rent-seeking behavior, neglect of other economic sectors, and a lack of transparency. However, recent research has shown that the link between oil wealth and these negative outcomes is not always guaranteed and can be influenced by other factors.

How can oil-rich countries avoid the 'resource curse' and ensure fair distribution of wealth?

To avoid the 'resource curse' and promote a more equitable distribution of wealth, good governance, transparency, and diversification are key. Countries need to manage their oil wealth responsibly by investing in areas like education and healthcare and by promoting economic diversification. This involves developing industries beyond oil to create jobs and stability for a broader population. Good governance also means ensuring transparency and accountability to prevent corruption and ensure that oil revenues benefit all citizens, not just a select few. More accurate data gathering is also required.

The study mentioned the 'Standardized World Income Inequality Database (SWIID)'. How does this database provide more insight than previous data?

The Standardized World Income Inequality Database (SWIID) provides valuable insights into the relationship between oil wealth and income inequality by offering a standardized and comparable dataset across different countries and time periods. This allows researchers to analyze income inequality trends more accurately and identify patterns that might not be visible with less standardized data. The SWIID helps to move beyond anecdotal evidence and provides a more rigorous empirical basis for understanding the impact of oil wealth on income distribution. However, there are some concerns about intentional under-reporting of data which needs to be addressed with new methods.

To what extent can governments use oil revenues to reduce income inequality, and what are the limits?

Governments can use oil revenues to reduce income inequality through various means, such as implementing social programs, investing in infrastructure development, and providing public services like education and healthcare. These interventions can help level the playing field and create more opportunities for disadvantaged populations. However, the effectiveness of these measures depends on the level of oil dependence and the quality of governance. The study indicates that the positive impact of oil revenues on reducing inequality tends to hold true only up to a certain level of oil dependence. Beyond that point, the 'resource curse' may kick in, especially if there is corruption or mismanagement of funds. Further research into the methods to discover data accurately will be required.