Analyzing the Relationship between Resource Allocation among Economic Sectors and the Urban and Rural Income Distribution in Iran

Document Type : Research Article

Author

• S. Jani

Assistant Professor, Faculty of Economics, Payame Noor University (PNU), Iran

https://doi.org/10.22067/jead2.v32i4.74895

Abstract

Introduction: According to literature, economic growth and fair income distribution will result in poverty reduction. To realize fair income distribution and economic growth simultaneously, some scientists consider resource allocation among economic sectors and some others believe regions access to facility will lead to realize the mentioned goals simultaneously. Current study shows that infrastructure improvement by providing deprived regions to access main economic activities and therefore earning opportunity will cause deprived regions inhabitants’ income to increase and income gap to decrease. Results of present study raise questions such as: ''How resource transfer among economic sectors in different regions may affect rural and urban income distribution depending on the amount of their amenity? "Does a special resource allocation among different economic sectors including resource transfer from industry and service sector to agriculture would cause rural income distribution improve?'' , ''“Is it possible to decrease rural and urban inequality together by insisting on a special rule of resource allocation among sectors? '' and ''Is this rule the same for both deprived regions and enriched regions?''
Materials and Methods: In this study the analysis focused on the relationship between resource allocation among economy’s main sectors (service, industry and agriculture) and the rural and urban income distribution in Iran separately in deprived provinces with amenity and semi-deprived provinces during (2007-2014) in the form of Panel data. The income inequality considered as function of economic sectors share (service, industry and agriculture) in the form of quantitative model, which examined by Dastidar (2012) and Kaya (2012) that is as follows:
 
(1)
 
In equation (1) G, Sha, Shi, Shs are rural Gini coefficient, agricultural, industry and service sector share of Gross domestic production (GDP), The Gini coefficient can be written in these ways:
 
 
 
Considering the linear relations among the factors, the above equations would be like these:
 
      (2)
     (3)
      (4)
 
Each of the equations contains the share of the added value of two economic sectors. Since the total share of three economic sectors equals 100, share of the absent sector will be the residual of the remained share. Therefore, each sector’s share coefficients in the equation, which equals to the share of absent sector variation, explained as income inequality variation in economy. For example, in the first equation if      which shows that a percent decrease in share of service sector, with the assumption that the share of other sectors be fixed,  will increase the share of agricultural sector  by one percent which consequently decreases the income distribution inequality about
Conclusion: The results for rural and urban regions of the provinces with low amenity indicate that production share shifting among economic sectors will affect inequality index significantly. Added value of service sector will be transferred to agriculture and industry and also added value of industry will be passed on agriculture which will cause urban and rural inequality reduction however shifting added value of industry to service sector will cause urban and rural inequality rise. These results show that agricultural sector development compared to service and industry sectors cause rural inequality reduction while industry sector’s development compared to service sector, which is due to the Kuznets theory, explain low inequality in agricultural sector. These results for deprived provinces and prosperous provinces mostly are not significant and result comparison for urban and rural regions show that service sector’s share transfer to agriculture in provinces with amenity or deprived is not effective on rural inequality but decreases the urban inequality. Also service sector share transfer to industry in deprived regions cause rural inequality decrease but has no effect on rural inequality.
In order to achieve economic growth and fair income distribution synchronic in provinces with low amenity boost in share of agriculture and industry will be advised. In addition, deprived provinces should be equipped with infrastructures to reach the prosperous provinces level and by transferring the source allocation like what before mentioned, improvement in rural and urban income distribution along economic growth will happen. However, for prosperous provinces source allocation among the sectors is not efficient so it is necessary to analyze the rules and institutions that are effective on income distribution in these regions. In other words, insisting on development of agricultural sector in regions where mostly poor groups are, amenity is not effective on rural inequality. While according to the previous studies agriculture development improve society’s income distribution. So in these regions it is necessary to analyze and consider the structures which are effective on rural income distribution and society.

Keywords

• Rural Income Distribution
• Source Allocation
• Economy's Main Sectors
• Deprived Provinces

20.1001.1.20084722.1397.32.4.7.2

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