Determinants of Income Inequality and its Effects on Economic Growth: Evidence from African Countries*

Abstract

The paper empirically investigates, in the context of African countries, the determinants of income distribution and inequality, the effect of inequality on economic growth, and the channels through which inequality affects growth. Data for 35 countries over different periods in the last four decades are employed. Factors identified as having affected income distribution include the level of economic development attained, regional factors, size of government budget and the amount of it devoted to subsidies and transfers, phase of economic cycle, share of agricultural sector in total labour force, as well as human and land resources endowment. Some evidence that high inequality reduces growth is also found. The channels through which inequality affect growth are found to be through reduction in secondary and tertiary education investment, reduction in political stability, and increase in fertility rate. There is, however, no evidence that it affects private saving and investment or the size of government expenditure and taxation, contrary to what is contended in the theoretical literature.Re´sume´: L'article analyse de manie`re empirique, dans le cas de pays africains, les de´terminants de la re´partition et de l'ine´galite´des revenus, l'effet de cette ine´galite´sur la croissance e´conomique et les voies par lesquelles l'ine´galite´affecte la croissance. L'article se sert de donne´es relatives a`35 pays sur diffe´rentes pe´riodes de ces quatre dernie`res de´cen-nies. Les facteurs identifie´s comme ayant influe´sur la re´partition du revenu sont notamment le niveau de de´veloppement e´conomique atteint, des facteurs re´gionaux, la taille du budget du gouvernement et la part de ce budget consacre´e aux subventions et transferts, la phase du cycle 287 e´conomique, la part du secteur agricole dans la main-d'oeuvre totale, ainsi que le volume des ressources humaines et foncie`res dont dispose le pays. Quelques preuves indiquent e´galement qu'une forte ine´galite´re´duit la croissance. Les voies par lesquelles l'ine´galite´affecte la croissance sont, entre autres, la re´duction des investissements dans l'enseignement secondaire et tertiaire, la diminution de la stabilite´politique, et l'accroissement du taux de fe´condite´. Cependant, on n'a pas la preuve que l'ine´galiteá ffecte l'e´pargne et l'investissement prive´s ou le volume des de´penses et impoˆts publics, contrairement a`ce qui est dit dans les publications the´oriques.

Is Corruption Really Bad for Inequality? Evidence from Latin America

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The poverty and inequality nexus in Ghana

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Income inequality in European Regions: Recent trends and determinants

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