Pparisa Moghadasi; Sajjad Faraji Dizaji; Abbas Assari Arani
Abstract
Income inequality is a critical economic issue that can destabilize socio-economic systems by impacting public health and economic resilience. This study investigates the role of good governance in mitigating the effects of COVID-19 on income inequality in oil-exporting countries, employing a panel ...
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Income inequality is a critical economic issue that can destabilize socio-economic systems by impacting public health and economic resilience. This study investigates the role of good governance in mitigating the effects of COVID-19 on income inequality in oil-exporting countries, employing a panel data model from 2000 to 2021. The analysis includes countries exporting over 50,000 barrels of oil daily, categorized into three groups by oil rent share in GDP. The independent variables encompass oil and gas rent, stringency index, population density, unemployment rate, good governance, an interaction term of good governance and COVID-19, and COVID-19 death rate. Findings indicate that the good governance-COVID-19 interaction significantly reduces income inequality in the first and third groups, with a negative effect on the Gini coefficient. However, in the second group—characterized by the highest oil rent—good governance does not mitigate the inequality impact of COVID-19-related deaths.
Introduction
The onset of 2020 marked the beginning of a global health crisis, with the COVID-19 pandemic significantly impacting economic sectors such as tourism, trade, capital markets, and currency stability. To contain the virus, governments increased health expenditures and offered financial support to households and businesses, funded through budget reallocations or tax adjustments. The pandemic’s effects varied among countries, influenced by differences in economic, political, cultural, and social structures, as well as governance responses (Nasseri et al., 2016).
In oil-dependent economies, natural resource rents—derived from foreign exchange earnings and foreign aid—exert a profound influence on institutional quality and governance. High oil rents contribute to a government’s financial independence from internal economic performance, potentially undermining good governance. Given the crucial role of governance, assessing public trust and the effectiveness of governance during the COVID-19 pandemic is essential, particularly regarding income inequality in oil-exporting countries (Dizaji, 2014; Dizaji & Ghadamgahi, 2018).
This research investigates the interactive effect of good governance and COVID-19 on income inequality in oil-exporting nations. In these countries, where budgets heavily depend on oil revenues, tax collection efforts may be deprioritized, reducing the efficiency of tax systems (Dizaji et al., 2023).
Methods and Material
This study uses an analytical-descriptive approach, employing a generalized linear model (GLM) for panel data to analyze the interactive effect of COVID-19 and governance on income inequality. Data were sourced from the World Bank, WHO, SWIID, Our World in Data, and OPEC. The study categorizes oil-dependent countries into three groups based on oil rent as a share of GDP:
First group: Countries with oil rent below 0.1% of GDP, including Australia, Sweden, the Netherlands, and others.
Second group: Countries with oil rent exceeding 10% of GDP, including Angola, Russia, Iran, and others.
Third group: Countries with oil rent between 0.1% and 10% of GDP, including Mexico, Brazil, China, and others.
Results and Discussion
The model presented in this paper is based on Mousavi Jahromi et al. (2013) and Su et al. (2022). We use oil rent, good governance, death rate resulting from COVID-19, stringency_index, unemployment rate, and population density as control variables in our model. In order to investigate whether good governance has been effective in reducing the adverse effects of COVID-19 on income inequality or not, the interactive variable of the product of the death rate from COVID-19 and good governance has been used.
GINI=
As can be seen, the coefficient of good governance is negative for all three groups of countries. This means increased good governance, can decrease income inequality, which is consistent with the results of past researches.
Table 1 GLM model estimation results
First Group
The explanatory variables
Coefficient
z statistic
Possibility
POPULATION_DENSITY
0/001351
11/56046
0/0000
GG
-4/302316
-8/865396
0/0000
STRINGENCY_INDEX
0/228148
1/772713
0/0763
UNEMPLOYMENT
-0/242954
-2/100441
0/0357
GG*COVIDDEATH
-0/000304
-0/398861
0/6900
COVIDDEATH
-12/02037
-1/675971
0/0937
Second Group
The explanatory variables
Coefficient
z statistic
Possibility
POPULATION_DENSITY
0/050317
5/607696
0/0000
GG
-0/000109
-0/784517
0/4327
STRINGENCY_INDEX
-0/018377
-0/089050
0/9290
RENT
0/388662
7/323428
0/0000
UNEMPLOYMENT
-0/241551
-1/330671
0/1833
GG*COVIDDEATH
0/001313
0/457576
0/6473
COVIDDEATH
2/248878
0/190813
0/8487
Third Group
The explanatory variables
Coefficient
z statistic
Possibility
POPULATION_DENSITY
-0/004998
-2/011478
0/0443
GG
-5/515814
-11/25881
0/0000
STRINGENCY_INDEX
-0/041721
-0/289228
0/7724
RENT
-0/462772
-3/916503
0/0001
UNEMPLOYMENT
0/662014
8/476852
0/0000
GG*COVIDDEATH
-0/001835
-0/881103
0/3783
COVIDDEATH
1/006094
0/111800
0/9110
* Research findings using Eviews software
The coefficient of the stringency index for countries of the second and third groups is negative, which means that increased stringency can decrease income inequality. But in the countries of the first group, the coefficient of stringency is positive, which means increased stringency can increase income inequality.
The interactive variable Corona × good governance has a negative and insignificant effect on income inequality in the first and third group countries and a positive and insignificant effect on the second group countries.
Conclusion
The results indicate that good governance in oil-exporting countries has effectively mitigated the adverse effects of the COVID-19 pandemic on income inequality. High-quality governance fosters public trust, enabling governments to respond more effectively to crises. Thus, nations with stronger governance frameworks have shown greater success in addressing COVID-19’s challenges and minimizing its negative impact on income disparities. This emphasizes the critical role of governance quality in managing socio-economic crises and maintaining equality.
