Iranian Journal of Economic Research

The Role of the Government and Large Local Companies in Income Distribution: A Case Study of Urban Areas of Khuzestan Province

Document Type : Research Paper

Authors

Sayed Amin Mansouri 1
Seyed Morteza Afghah 2
Behrouz Sadeghi Amroabadi 3
Hassan Farazmand 4
Yaghoub Andayesh 3
Ali Boudaghi 5

1 Associate Professor, Department of Economics, Shahid Chamran University of Ahvaz, Ahvaz, Iran

2 Associate Professor, Department of Economics, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

3 Assistant Professor, Department of Economics, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

4 Professor, Department of Economics, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

5 Assistant Professor, Department of Sociology, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

https://doi.org/10.22054/ijer.2024.76813.1236
Abstract
One of the significant challenges in regional development is examining the role of local governments and their relationship with large local companies in income distribution. This challenge is particularly pertinent when large companies have national objectives, and most of their production capacity is capital-intensive and knowledge-intensive, but their operational area is locally focused on the user. The present research aimed to explore the role of the government and large local companies in income distribution. Khuzestan Province was chosen due to its unique characteristics in this regard. The study covered the period from 2006 to 2020, analyzing seasonal data using the generalized method of moments (GMM). The findings indicate that the government’s current and construction expenditures in the province have a negative and significant effect on the urban Gini coefficient. In contrast, the value-added variable of large industrial companies in the province has a positive and significant effect on the urban Gini coefficient. The results suggest that careful planning and coordination between large companies and provincial managers should be sought by adopting policies such as increasing local employment and training local workforce, thereby reducing dissatisfaction and income inequality in the province.

Introduction

One of the significant challenges in regional development is examining the role of local governments and their relationship with large local companies in income distribution. This challenge is particularly pertinent when large companies have national objectives, and most of their production capacity is capital-intensive and knowledge-intensive, but their operational area is locally focused on the user. Based on the available evidence, large companies in Khuzestan Province (e.g., oil, petrochemical, and steel companies), which are part of national entities, generate national income. However, the local population’s share of this income is small. Meanwhile, private companies in Khuzestan Province are under pressure to pay taxes. This has led to the perception among the people in the province that the presence of these national entities has resulted in a low local share of their income. In other words, the income generated by these companies flows out of the province, leaving the local population with a minimal share. In this respect, the present research aimed to explore the role of the government and large local companies in income distribution in Khuzestan Province during 2006–2020.

Materials and Methods

The primary research question is whether the government’s financial policies and the presence of large companies in Khuzestan Province significantly affect income distribution within the province. Using the generalized method of moments (GMM), the study relied on the seasonal data from 2006 to 2020 to address the research question.

Results and Discussion

The results indicate that government’s current and construction expenditures in the province have a negative and significant effect on the urban Gini coefficient. Conversely, the value-added variable of large industrial companies in the province has a positive and significant effect on the urban Gini coefficient. This suggests that the presence of large industrial companies has not only failed to reduce inequality but actually increased urban inequality in the province. The findings also show that both types of user investment and Berber knowledge are effective in reducing the urban Gini coefficient in Khuzestan Province. Additionally, the study found that air pollution in the province has a positive and significant effect on the urban Gini coefficient. This implies that increased pollution, caused by industrial activities, disproportionately impacts the lower classes as the benefits of these activities do not reach the lower-income population. Instead, these polluting industries impose negative external effects on the local population while contributing to increased inequality by introducing imbalances considering payments to national production factors.

Conclusion

According to the research results, the presence of large companies in the province has neither generated local benefits nor reduced income inequality in the urban sector. It is thus recommended that careful planning and coordination between large companies and provincial managers should be sought by adopting policies such as increasing local employment and training local workforce, thereby reducing dissatisfaction and income inequality in the province.
Acknowledgements
We express our gratitude to the Vice-Chancellor for Research Affairs of Shahid Chamran University of Ahvaz for his assistance in conducting this research.
Conflict of interest
The authors declare no conflict of interest in publishing this article
Funding
This study is part of a research project related to industry between Shahid Chamran University of Ahvaz and the Management and Planning Organization of Khuzestan Province, financially supported by contract number 100z1310004 (971875).
Subjects
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  • Receive Date 18 November 2023
  • Revise Date 14 June 2024
  • Accept Date 18 June 2024
  • First Publish Date 18 June 2024

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