Urbanization, Economic Structure, Political Regime, and Income Inequality

Abstract

The study examined the effect of urbanization on income inequality for 21 Sub Saharan African countries over the period 1984–2014 using heterogeneous panel estimation techniques. Based on the Pooled Mean Group and Common Correlated Effects Mean Group estimation techniques, the findings of the study do not support the Kuznets hypothesis. The results show that democratic reforms are negative and significantly related to income inequality. On the other hand, the share of agriculture in GDP and foreign direct investment do not have an independent robust effect on income inequality while GDP per capita, trade openness and urbanization have positive effects on income inequality. However, the findings show that institutional quality moderates the effect of urbanization on income inequality in the long-run.

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Fig. 1

Notes

  1. 1.

    We square urbanization (urbsq) in our equation to investigate the inverted U shape or Kuznets hypothesis.

  2. 2.

    In addition to GDP per capita, agriculture sector (contributes about 14.7% of GDP, higher than the world’s average (3.1%) as at 2013), FDI inflows (2.6% of GDP as at 2014, higher than the world’s average of 2%) and trade openness (contributes more than 60% to GDP as at 2014) are used to capture the economic structure of the Sub-Saharan African continent due to their significant inflows.

  3. 3.

    In this study we acknowledge that OLS, FE and RE models are unsuitable using the Hausmann test which available on request.

  4. 4.

    4For both stationary and nonstationary regressors (see Pesaran et al. 1999).

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Correspondence to Samuel Adams.

Appendix

Appendix

See Tables 7, 8, 9 and 10.

Table 7 List of countries
Table 8 Estimates of Kuznets curve
Table 9 Pesaran (2004) cross-sectional dependency test
Table 10 Variable definitions and sources

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Adams, S., Klobodu, E.K.M. Urbanization, Economic Structure, Political Regime, and Income Inequality. Soc Indic Res 142, 971–995 (2019). https://doi.org/10.1007/s11205-018-1959-3

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Keywords

  • Urbanization
  • Democratic reforms
  • Institutional quality
  • Income inequality
  • FDI
  • Heterogeneous panel techniques