Globalization and income inequality: A panel data analysis of 37 developing countries in Africa

Abstract

The lack of economic facts on the effects of globalization and income inequality in Africa has made it difficult for an effective economic policy response to the problem of inequalities in the continent. Against this backdrop, this paper examined the nexus between globalization and income inequality by estimating Ordinary Least Square (OLS) and the Random model for Panel data of 37 developing countries in Africa over the period of 1970 to 2014. The relationship between income level and income inequality justifies the validity of Kuznets’ U hypothesis. The results showed a negative relationship between the total globalization index and income inequality after taxes and transfer for the (OLS). Results for the globalization sub-indicators such as economic globalization showed a robust positive significant relationship for both measures of income inequality measures (Gini net and Gini market), while political globalization showed a negative relationship with both income inequality measures. It is recommended that government in African countries should strengthen their institutions to promote policy frameworks that will increase income levels and the human capital capacity, while steps should be taken to control the ever-increasing population and age dependency ratio.