Economic growth and income inequality in sub-Saharan African countries: A test of Kuznets’ hypothesis

Abstract

In this study, the influence of economic growth on income disparities in 29 sub-Saharan African (SSA) countries is investigated for the period 2005-2015. The primary objective of the study is to empirically test Kuznets’ hypothesis, which holds that there is an inverted U-shaped relationship between economic growth and income inequality. The study examined this relationship using four proxies for income inequality: the composite inequality index, the Atkinson index, the Gini coefficient, and the Palma ratio. Using a modified version of a difference generalised method of moments (GMM) estimation technique, it was found that regardless of the proxy used to measure income inequality, there is a consistently significant negative relationship between income per capita (y) and income inequality in the countries under study. A consistent positive relationship was also found between the square of income per capita (y2) and income inequality across all the proxies used in the study. The study found that the relationship between economic growth and income inequality follows a U-curve. The result suggests that while economic growth initially lowers income inequality, inequality eventually rises in tandem with growth. This suggests that the bulk of the studied economies in the SSA region are situated on the downward portion of the U-curve. The policy implications are discussed.

Keywords

• economic growth
• incomeinequality
• kuznets’ hypothesis
• sub-saharan africa
• gmm approach