The impact of economic growth on income inequality : unveiling the role of institutional quality in selected African countries

Abstract

In eleven carefully chosen African nations (Burkina Faso, Cameroon, Central African Republic, Cote d'Ivoire, Guinea-Bissau, Kenya, Mali, Niger, Senegal, Tunisia, and Zambia), this study examines the short-run and long-run effects of economic growth and institutional quality on income inequality over a balanced panel period from 2000 to 2021. The study adopts the Kuznets hypothesis in exploring the moderating role of institutional quality while incorporating important control factors such as unemployment rate and government’s investment in education on the inequality-growth nexus. In accordance to the inverted U-shaped Kuznets curve, the panel Autoregressive Distributed Lag (ARDL) technique employed in the study shows that there is a long-run, statistically significant, and non-linear relationship between economic growth and income inequality. Additionally, it is found that while the relationship between economic growth and institutional quality showed varying short-run effects across nations, institutional quality has a negative but statistically insignificant effect on income inequality. Furthermore, a systematic structural imbalance in labour and education was shown by the long-run positive and significant effects of both the unemployment rate and the government’s investment in education on income inequality. Country-specific results from the study showed heterogeneities in how economic and institutional factors influence inequality dynamics. The study findings underscore the significance of inclusive growth strategies, robust institutional quality reforms, and purposive investment in education and job creation as imperative to reducing Africa’s growing income inequality.