Empirical Analysis of the Key Drivers of Income Inequality in West Africa

Abstract

This paper extends and contributes to the literature on the drivers of income inequality in West Africa. Principally, it empirically assesses the impact of key domestic and external drivers of income inequality with a view to drawing key lessons for West African countries. Using the dynamic system GMM estimation procedure, the authors analyze an unbalanced pooled time series data set of income distribution in 17 West African countries from 1970 to 2011. Our inequality measures, the market (gross) and net income inequality coefficients, are from a global inequality dataset, which ensures data comparability both through time and across countries. Our novel finding shows strong support for a dynamic, non-monotonic, inverted U-shaped, effect of inequality in the model (as expressed by the lagged values of income inequality). We find evidence of existence of the Kuznets curve in the sub-region, which proposed that inequality may rise with the initial increase in per capita income but will decline subsequently. A non-monotonic, Kuznets-type effect is found for political globalization. Our results also show that access to secondary education (skill premium) social globalization, age dependency (for net income inequality) and democracy strongly and significantly equalize income in West Africa. The authors find that population density, natural resources dependence, domestic investment rate, government consumption expenditure, trade openness, inward foreign direct investment, international remittances, and civil conflicts appear to be income disequalizing in the sub-region. The policy lessons and implications are discussed.