Income Inequality and Natural Resource Endowment in the Russia's Regions

Abstract

This article evaluates the impact of natural resources on income inequality in the Russia’s regions using the relative indicator of natural resource endowment - the share of the extractive sector in the GVA of the region, which is interpreted as a dependence of the region's economy on the extraction of natural resources. The results of the evaluation of panel models with region and time fixed effects show that there was a nonlinear relationship between natural resource endowment and within-region income inequality in 79 Russia’s regions for the period 2004-2020: natural resources contributed to the mitigation of income inequality when their share in the structure of the economy was less than 30%, but with further growth of the resource sector, the effect changed to the opposite. Estimates from the subsamples showed that for 10 regions where the average share of employment in the extractive sector for the period exceeded 4%, natural resources contributed to the growth of income inequality. The probable reason for this result is the polarization of the labor market in resource-rich regions. At the same time, for the remaining 69 regions, the effect of natural resource endowment was significant and negative for income inequality. For groups of regions engaged in the extraction of certain types of resour­ces - coal, oil and gas, metal ores, a nonlinear effect was maintained. Thus, we can talk about the mitigating effect of natural resources for income inequality in those regions where the economy is not heavily dependent on the resource extraction. The results of the study can be used to deve­lop economic policy in different regions of Russia.