Hamzeh Arabzadeh
(RWTH Aachen University )
will give a presentation on
Distribution of natural resource rents and deindustrialization: the role of luxury goods
Abstract: Developing natural resource-rich countries are important destinations for luxury manufacturing goods, while they are not capable of producing these products domestically. Based on these insights, we theoretically show that in the presence of trade costs and with increasing return-to-scale technologies in the manufacturing sector, the demand for luxury goods exacerbates the deindustrialization (Dutch disease) effect of natural resource rents. Linking an increase in the demand for luxury goods to income inequality, our model provides a testable prediction on the nexus between income distribution and the intensity of the Dutch disease effect of natural resource rents. We use a sample of around 95 non-OECD countries and employ pooled mean group ARDL, the system GMM, and triple diff-in-diff methods to test the main theoretical prediction of our model. The results show that income inequality intensifies the deindustrialization effect of resource rents, consistent with the theoretical prediction.