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Growth effect of income inequality in sub-Saharan Africa: exploring the transmission channels

Ibrahim Abidemi Odusanya
Ibrahim Abidemi Odusanya
 et 
Anthony Enisan Akinlo
Anthony Enisan Akinlo
   | 26 mai 2020
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Article Category: Empirical Paper
Publié en ligne: 26 mai 2020
Pages: 176 - 190
Reçu: 28 mai 2019
Accepté: 08 mars 2020
DOI: https://doi.org/10.2478/ijme-2020-0012
Mots clés
© 2020 Ibrahim Abidemi Odusanya et al., published by Sciendo
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Effect of income inequality on growth (credit market imperfection channel)

Dependent variable M2/GDP Per capita GDP Per capita GDP Per capita GDP
M2/GDPt-1 0.8675*** (0.0183)
Per capita GDPt-1 0.9847*** (0.0094) 0.9868*** (0.0169) 1.0098*** (0.0165)
Per capita GDPt 0.0560*** (0.0127)
Gini index −0.1213* (0.0727) −0.0204 (0.0355) −0.0054 (0.0468) −0.0544* (0.0310)
Gross capital formation 0.0269 (0.0239) 0.0272*** (0.0092) 0.0168* (0.0099) 0.0285* (0.01609)
M2/GDP 0.0001 (0.0025)
Human capital 0.0127 (0.0103) −0.0159 (0.0142)
General government expenditure −0.0397* (0.0230)
Labor force 0.0013 (0.0082) −0.0259*** (0.0104) −0.0277*** (0.0099) −0.0282 (0.0176)
Openness −0.0274*** (0.0094) −0.0196* (0.0107) −0.0370** (0.0181)
Inflation −0.0015*** (0.0002) 4.73e–07 (3.63e–07) −0.0004 (0.0002) −0.0007* (0.0004)
Life expectancy −0.0100 (0.0262) −0.0071 (0.0627)
Gini index*M2 −0.0498* (0.0288)
Constant 0.8562 (0.3647) 0.0495 (0.2226) 0.0247 (0.1785) 0.4040 (0.2861)
Cross sections 31 31 31 31
Instruments 28 28 29 19
Hansen test 0.428 0.281 0.282 0.528
AR (1) 0.243 0.000 0.001 0.009
AR (2) 0.308 0.877 0.593 0.528

Sources of data, description, and measurement of variables

Variable Description Measurement Source (s) of data
INEQ Market Gini Gini index of inequality in equivalized household (pretax and pretransfer) income Standardized World IncomeInequality Database (SWIID)
Y GDP per capita Income per head for individuals in the population obtained as the GDP divided by the total population WDI
K Physical capital Gross fixed capital formation WDI
L Labor force Total labor force WDI
H Human capital Primary school enrollments WDI
OPEN Openness Exports plus imports/GDP WDI
FR Total fertility rate Number of births per woman WDI
HCE Health care expenditure General government expenditure on health per capita in constant (2005) dollars World Health Organization (WHO)
INF Inflation rate Consumer prices (annual %) WDI
GGOV General government expenditure General government final consumption expenditure United Nations database
M2 M2/GDP Broad money as a percentage of GDP WDI
SAV Saving Gross national savings IMF World Economic Outlook
UPR Urbanization Urban population growth (annual %) WDI
LE Life expectancy Life expectancy at birth WDI
IMR Infant mortality rate This is expressed per 1,000 live births WDI

Effect of income inequality on economic growth via the human capital channel

Dependent variable Human capital Per capita GDP Per capita GDP Per capita GDP
Human capitalt-1 0.9987 (0.0054)
Per capita GDPt-1 1.0001*** (0.0062) 0.9857*** (0.0077) 0.9998*** (0.0148)
Gini index −0.0723*** (0.0246) −0.0446* (0.0248) −0.0541 (0.0410) −0.1811* (0.0975)
Gross capital formation 0.0147** (0.0077) 0.02029*** (0.0057) 0.0548*** (0.0223)
Fertility rate 0.0538** (0.0219)
Human capital 0.0428** (0.0216)
Labor force −0.0107 (0.0076) −0.0626*** (0.0241) −0.0394 (0.0488)
Openness −0.0179** (0.0087) −0.0236*** (0.0061) −0.0623*** (0.0225)
Inflation −0.0004*** (0.0001) −0.0005*** (0.0001) −0.0018* (0.0010)
Life expectancy −0.0271 (0.0318) −0.4167*** (0.1601)
Urbanization 0.0041 (0.0051)
Human capital*Gini index −0.0173 (0.0543)
Constant 0.2330 (0.1351) 0.1633 (0.1895) 0.2483 (0.1915) 2.1651 (0.8149)
Cross sections 31 31 31 31
Instruments 22 31 29 18
Hansen test 0.204 0.288 0.651 0.847
AR (1) 0.028 0.008 0.013 0.000
AR (2) 0.651 0.429 0.974 0.561

Effect of income inequality on economic growth via the fiscal policy channel

Dependent variable General government expenditure Per capita GDP Per capita GDP Per capita GDP
General government expendituret-1 1.0033*** (0.0050)
Per capita GDPt-1 1.0183*** (1.0183) 1.0182*** (0.0041) 1.0106*** (0.0150)
Gini index 0.0218 (0.0744) −0.0307 (0.0327) −0.0474** (0.0211) −0.0016** (0.0574)
Gross capital formation 0.0007 (0.0020) −0.0125 (0.0099) 0.0683*** (0.0214)
General government expenditure 0.0119 (0.0097)
Life expectancy −0.1193** (0.0612)
Labor force 0.0014 (0.0037) 0.0038 (0.0028) −0.0084 (0.0182)
Inflation −8.09e–06*** (1.57e–06) 1.46e–06*** (3.64e–07) −0.0004*** (0.0001) −0.0013* (0.0008)
Health care expenditure 0.0242* (0.0144)
Urbanization 0.0137*** (0.0052) 0.0063*** (0.0015) 0.0048*** (0.0011)
Openness −0.0185 (0.0189)
Gini index*General government expenditure −0.0568** (0.0268)
Constant −0.2489 (0.3794) −0.0544 (0.12780) 0.0253 (0.1207) 0.5546 (0.3173)
Cross sections 31 31 31 31
Instruments 24 29 21 20
Hansen test 0.583 0.293 0.336 0.570
AR (1) 0.048 0.001 0.002 0.000
AR (2) 0.346 0.831 0.958 0.850

Effect of income inequality on economic growth (saving channel)

Dependent variable Saving Per capita GDP Per capita GDP Per capita GDP
Saving t-1 0.7874*** (0.1302)
Per capita GDP t-1 0.9633*** (0.0216) 0.9628*** (0.0177) 0.9724*** (0.0133)
Per capita GDP 0.0748949 (0.0860451)
Gini index 0.0141 (0.2531) −0.0169 (0.0839) 0.0148 (0.0944) 0.0898*** (0.0343)
Gross capital formation 0.1207** (0.0554) 0.0608*** (0.0222) 0.0377* (0.0201) −0.0005 (0.0104)
Saving 0.0305** (0.0153)
General government expenditure −0.1141** (0.0521)
Labor force −0.0438 (0.0302) −0.0248 (0.0327) 0.0025 (0.0122)
Openness −0.0634*** (0.0231) −0.0404 (0.0222) 0.0012 (0.0110)
Inflation −0.0005*** (0.0001) 0.0001 (0.0004) 0.0015 (0.0016)
Life expectancy −0.1852* (0.1031) −0.0274 (0.1247) 0.2073** (0.0777)
Saving*Gini index 0.0194*** (0.0069)
Constant −0.1916 (0.7285) 0.4571 (0.7065) −0.1704 (0.9698) −1.1311 (0.3665)
Cross sections 31 31 30 30
Instruments 19 21 21 28
Hansen test 0.557 0.300 0.328 0.229
AR (1) 0.027 0.009 0.004 0.000
AR (2) 0.361 0.328 0.786 0.697

Empirical studies on the transmission channels of the effect of income inequality on economic growth

Authors Mechanism/channel Sample Data structure Measure of inequality Estimation method Validity or relevance of tested mechanism
Persson and Tabellini [1994] Political economy (fiscal policy) 13/43 countries (1960–1985) Cross section Income share of the fourth quintile OLS; 2SLS Rejected
Alesina and Perotti [1996] Sociopolitical instability; Credit market imperfection 71 countries (1960–1985) Cross section Income share of the third and fourth quintiles 2SLS Accepted
Perotti [1996] Credit market imperfections 62 countries (1960–1985) Cross section Income share of the third and fourth quintiles OLS; 2SLS Ambiguous result
Perotti [1996] Fiscal policy 49/27 countries (1960–1985) Cross section Income share of the third and fourth quintiles OLS; 2SLS Rejected
Perotti [1996] Sociopolitical instability; Fertility 64 countries (1960–1985) Cross section Income share of the third and fourth quintiles OLS; 2SLS Accepted
Deininger and Squire [1998] Credit market imperfections 52/81 countries (1960–1992) Cross section Land Gini coefficient OLS Accepted
Deininger and Squire [1998] Fiscal policy 52/81 countries (1960–1992) Cross section Land Gini coefficient OLS Rejected
Svensson [1998] Political economy (Sociopolitical instability) 101 countries 1960–1985 Cross section Income ratio between the share of income by the poorest 40% to the richest 20% OLS Accepted
Sylwester [2000] Sociopolitical instability 52 countries (1960–1992) Cross section Gini coefficient 3SLS Accepted (short run); Rejected (long run)
Barro [2000] Saving 84 countries (1965–1995) Panel Gini coefficient OLS Rejected
Deininger and Olinto [2000] Human capital 31/60 countries (1966–1990) Panel Land Gini coefficient System GMM Accepted
Mo [2000] Human capital; Sociopolitical instability; Fiscal policy 1970–1985 Cross section Gini index 2SLS Accepted
Keefer and Knack [2002] Sociopolitical instability 56/89 countries (1970–1992) Cross section Income; Land Gini coefficient OLS Accepted
Pineda and Rodríguez [2006] Fiscal policy Number of countries not available (1960–1997) Panel N/A Random effects Accepted
De Mello and Tiongson [2006] Fiscal policy 54 countries (1981–1998) Cross section Income Gini coefficient OLS; Tobit Accepted
Barro [2008] Fertility (1960–2000) Cross section Gini index 3SLS Accepted
Cingano [2014] Human capital 31 OECD countries (1970–2010) Panel Net and gross Gini System GMM Accepted
Cingano [2014] Fiscal policy 31 OECD countries (1970–2010) Panel Net and gross Gini System GMM Rejected
Grundler and Scheuermeyer [2018] Human capital; Fertility; Saving; Fiscal policy 164 countries (1965–2014) Panel Net and gross Gini System GMM Accepted
Madsen et al. [2018] Saving; Investment; Education/knowledge production 21 OECD countries Panel Gini index; Income share of top 10% 2SLS; OLS Accepted

Effect of income inequality on economic growth via the fertility channel

Dependent variable Fertility rate Per capita GDP Per capita GDP Per capita GDP
Fertility ratet-1 1.0304*** (0.0198)
Per capita GDPt-1 0.1497*** (0.0435) 1.0082*** (0.0096) 1.0298*** (0.0147) 0.9853*** (0.0083)
Per capita GDP −0.1473 (0.0438)
Gini index 0.0098 (0.0158) −0.0285 (0.0384) −0.0729* (0.0409) −0.0180 (0.0514)
Adolescent fertility rate 0.0083*** (0.0033)
Infant mortality rate −0.0146** (0.0072)
Gross capital formation 0.0095** (0.0046) 0.0021 (0.0023) −0.0268*** (0.0092)
Labor force −0.0087* (0.0049) −0.0051 (0.0046) −0.0247** (0.0109)
Fertility rate −0.0103 (0.0394)
Openness −0.0096* (0.0051) −0.0285*** (0.0097)
Inflation 1.22e−06*** (3.73e−07) 2.48e–06*** (6.00e–07) −0.0006*** (0.0001)
Urbanization 0.0060*** (0.0021) 0.0104*** (0.0018)
Life expectancy −0.2286*** (0.0917)
Gini index*Fertility rate −0.0686*** (0.0215)
Constant −0.0910 (0.0637) −0.0235 (0.1402) 0.0923 (0.1358) 1.2872 (0.5421)
Cross sections 31 31 31 31
Instruments 26 28 16 21
Hansen test 0.371 0.121 0.553 0.777
AR (1) 0.110 0.001 0.003 0.001
AR (2) 0.339 0.808 0.423 0.980

Descriptive statistics

Variable GDP SAV INEQ L OPEN INF LE M2 H UPR HCE IMR FR
Mean 1570.08 14.92 40.50 6895886 445.39 48.88450 56.55 85.73 2401450 5676360 33.54 70.46 5.06
Median 835.97 14.76 43.50 4081389 202.80 5.826429 56.17 23.24 980033 2214526 31.00 68.60 5.31
Maximum 9468.94 45.84 68.50 55789427 6181.44 24411.03 77.79 18347.09 26167544 86561390 93.00 152.30 7.73
Minimum 182.70 −18.03 0.00 132168 0.15 −9.616154 33.33 0.00 0.000000 189769 3.00 12.70 1.36
Standard deviation 1885.53 10.56 17.96 9938663 846.39 957.5849 7.58 1001.35 3975386 11201148 20.27 27.17 1.34
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