The Influence of Oil Prices on Income Inequality in the Association of Southeast Asian Nations

This study explores the drivers of income inequality using crude oil prices, consumer prices, economic development, trade openness, unemployment, and human capital as predictors. Despite a lot of research conducted on income inequality, there have been very few studies capable of simultaneously analysing the influence of energy prices, macroeconomic conditions, trade openness, conditions in the labour market, and human capital, as well as accounting for the dynamic persistence and potential endogeneity of inequality across countries. To fill this research gap, based on a panel of 230 observations, analyses are run using pooled ordinary least squares, as well as fixed and random effects derived from model-selection tests that favour the random effects specification. An analysis using a dynamic panel data model was also carried out in this study. The empirical results show that crude oil prices, trade openness, and unemployment are all positively correlated with income inequality and that GDP per capita and human capital have a significant deterrent effect on the expansion of income inequality. With the random effects model, a US$1 increase in crude oil prices increases the Gini index by 0.0186 points; meanwhile, one-percentage-point increases in trade openness and unemployment contribute to increases in inequality of 0.0142 points and 0.722 points, respectively. On the other hand, a US$1000 increase in GDP per capita lowers the Gini index by about 0.0699 points, and an improvement of 0.1 point in human capital decreases inequality by approximately 1.497 points. Controlling for country-specific effects does little to show an association with consumer prices. The model accounts for 43.11 per cent of the variation in income inequality. The findings show that inclusive growth strategies, investment in human capital and labour-market policies are evidently pivotal to addressing inequality fostered by economic transformation and energy-price volatility.