Abstract
This paper examines the relationship between globalization and income inequality in Sub-Saharan Africa (SSA). Globalization is here measured using trade variables like the openness rate (TO), financial variables including FDI while income inequality is measured by the GINI coefficient. This was achieved by using data from 26 countries over the period 2005-2014, using the System Generalized Method of Moments (SGMM) estimator to obtain results from the African context. The results suggested that trade openness exerted an equalizing effect while financial globalization through FDI has been the critical factor driving inequality in the SSA since 2005. The results also showed that outside of FDI, corruption contributes greatly to widening inequality by about 3%. The effect of the other control variables was all together insignificant. The prevailing economic status as portrayed following on the back of the 2008 financial crisis has led to an increase in inequalities in SSA countries. These results are robust to the using of the KOF Globalization index. Through this research, governments and policymakers have to introduce robust and appropriate policies and interventions in their drive for economic growth to decisively deal with corruption and so direct FDI to economically sound targeted priority programs.
Highlights
A series of different processes allowing the interdependence or the interpenetration and the bringing together of economies allows to characterize globalization which is a multidimensional phenomenon
GINI represents the measure of inequality; FDI is foreign direct investment; TO is the openness rate and X is a vector for control variables comprising : GDP is gross domestic product per capita in US dollars; TRADE represents trade in goods as a percentage of GDP; INFLATION measures the general increase in the level of consumer prices; SAVINGS represents gross savings as a percentage of GDP; RESSPr represents private sector financing as a percentage of GDP; URB is the level of urbanization measured by the urban population as a percentage of the total population, and CORR represents the corruption check to capture perceptions of the extent to which public power is exercised for private gain
An increase in FDI of around 1% leads to an increase in inequalities of around 0.3%
Summary
A series of different processes allowing the interdependence or the interpenetration and the bringing together of economies allows to characterize globalization which is a multidimensional phenomenon. Globalization has brought about a new era in world trade where goods and services move more freely than before and where some developing countries have taken advantage of this phenomenon to become powerful exporting countries (Elmawazini et al, 2013). Globalization and its effects on economic growth, poverty, inequality, regional differences, and economic integration have increased with the acceleration of the opening of countries to the rest of the world in the era of the global economy. Countries have shown different development patterns and results because they have a great heterogeneity in the degree of globalization. The development gap in SSA countries is a source of inequality and poverty. The linkage between inequality and globalization has been a focus of attention in several studies (Dollar, 2005; Goldberg and Pavcnik, 2007)
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