Financial Development and Income Inequality Nexus in Africa

Does Governance Matter?

Abstract

The study investigates the role of governance on financial development and inequality nexus in African economies. Based on the system-Generalised Method of Moments (sys-GMM) on 41 African countries from 2001-2020. The empirical findings from the study are: (1) income inequality is highly persistent in the African countries; (2) financial development has insignificant increasing impact on inequality; (3) the interactive terms of financial development with control of corruption and rule of law have increasing impacts on income inequality implying that when there is rule of law and corruption is under controlled, given an increase in financial development will further widen inequality in the region. The study concludes by advocating for the need of good governance before income inequality can be reduced in Africa.