Sub-Saharan Africa’s Tragedy: Resource Curse, Democracy and Income Inequality

Abstract

This study utilized instrumental variable techniques and the Driscoll-Kraay estimator to examine the effect of democracy and natural resources on income inequality using a comprehensive panel dataset from 43 sub-Saharan Africa (SSA). The findings from our empirical analysis indicated that natural resources and democracy indices such as electoral, liberal, participatory, deliberative, and egalitarian drive income inequality in SSA. Regional comparative analysis also showed that the democracy indices increase income inequality in West, Central, and Southern Africa while having a neutral effect on income inequality in Eastern Africa. Natural resources were revealed to reduce income inequality in West and Southern African countries while increasing income inequality in Eastern Africa. In the case of Central Africa, natural resources play an insignificant role in income inequality. The interactive effect analysis indicates that the democracy indices interact with natural resources to increase income inequality in SSA. Finally, the democracy indices interacted with natural resources to drive income inequality in Eastern and Southern African countries while exerting an insignificant effect on income inequality in West and Central African countries. The policy implications of the findings are discussed.