Spatial determinants of income inequality at the global level: The role of natural resources

Income inequality is a critical determinant of economic development, making it imperative to identify the factors that impact it positively or negatively through diverse methodologies. This study aims to investigate the spatial implications of natural resource rents, international trade, and democracy on income inequality in 78 countries across different regions from 1995 to 2017. A regional disaggregation was carried out, capturing spatial spills between neighboring countries. The study employed a spatial panel data econometric approach, integrating spatial lag (SAR), spatial error (SEM), Spatial Autoregressive Combined (SAC), and spatial Durbin (SDM) models. The findings provided empirical support for Heckscher and Ohlin's (1933) theory, indicating that regions with robust democratic systems effectively mitigate income inequality. Additionally, developed regions characterized by strong democracies demonstrated the capacity to enhance social welfare through the utilization of natural resource rents. Moreover, the study confirmed the presence of spatial dependence in income inequality across a majority of regions, with indirect effects manifesting as spillovers to neighboring countries. This research presents novel findings that contribute to understanding how income from natural resources affects income inequality, considering spatial effects. Likewise, this scientific article provides new ideas for the approach of new perspectives, focus, or theories on income inequality. An emphasis of economic policy might be on progressing toward a more exceptional level of transparency and fair democracy as well as on enhancing and diversifying the producing sectors. In order to reduce resource concentration, collaboration across nations would be crucial, taking geographical disparities into account.