Income inequality, structural change, and inclusive economic growth

Abstract

Sub-Saharan African countries have experienced significant structural change and economic growth in recent decades; however, inequality levels remain high raising concerns that the growth is not inclusive enough to reduce inequality levels. There are extensive debates on the relationship between income inequality and economic growth because this can vary across and along the growth path of countries. This study explores the effect of economic growth and structural change on income inequality using a panel dataset of 40 sub-Saharan African countries over the period 2001-2015. The study employs the iterated Generalized Method of Moment (GMM) estimator for analysis. The findings suggest that although increased income levels in the region fuel inequality, the transition of the economies towards the services sector could reduce income inequality. However, the overall contribution of structural change to reducing inequality levels has been minimal suggesting that the growth experiences of the region, especially over the last two decades, may not have been inclusive, hence the need for enhanced redistributive policies to deepen inclusivity of the growth process.