Effect of natural resources rents on income inequality in sub-Saharan Africa: exploring the direct and indirect transmission mechanisms

Abstract

PurposeThe reduction of income inequality and the ways to fight against it are source of debate among scientific communities and policymakers. Rents from natural resources that African countries are endowed with remain one way to cope with income inequality, but its influence on income inequality is mixed. Thus, the purpose of this paper is to explore the direct and indirect transmission mechanisms through which natural resources rents can affect income inequality in sub-Saharan Africa.Design/methodology/approachThis study obtained data on income inequality from the Standardised World Income Inequality Data database, natural resources rents from World Bank’s Development Indicators and education from United Nations Development Programme for the period 1990–2018. It was analysed using system generalised method of moments.FindingsThe results of this study showed that natural resources rents solely increased income inequality, but its interaction with education significantly reduced income inequality.Research limitations/implicationsThese findings suggest that the reduction of income inequality by natural resources rents passes through a good education system in sub-Saharan African countries.Originality/valueIn previous studies, authors analysed the role of education in the relationship between natural resources rents and income inequality by inserting the two variables separately in the model. But in this paper, the author analysed the role of education in the relationship between natural resources rents and income inequality by using the interaction of natural resources rents and education.