Do macroeconomic indicators determine income inequality in selected African countries?

Abstract

This study investigates the effect of macroeconomic variables on income distribution in Africa using panel data from 2001 to 2016. This is motivated by the high degree of income inequality and poverty in the region. Twenty‐eight (28) African countries were selected to capture every region. The selection of countries and the choice of this period were informed by data availability. The variables of interest were income inequality obtained from the Standardized World Income Inequality Database (SWIID), while the Gross Domestic Product, Inflation, and Unemployment were obtained from the World Bank database. A dynamic panel model using the Generalized Method of Moment (GMM) estimator was used to control for both individual and time‐specific effects. The Heterogeneous aspect of the Augmented Dicky‐Fuller (ADF), the Levine‐Lin‐Chu test and, the Im‐Pesaran‐Shin (IPS) panel units root process were utilized to test for the stationarity of the panel data. The results of the General Method of Moment (GMM) indicate a significant negative relationship between income inequality and economic growth. The study rejected the existence of the Kuznets curve hypothesis, and concludes that Inflation rate, Wage rate and labour force impact negatively income inequality, while unemployment and education impact positively.