Economic growth and income inequality: a non-linear econometrics analysis of the SADC region, 1990–2015
African Journal of Economic and Management Studies
ISSN: 2040-0705
Article publication date: 5 April 2021
Issue publication date: 25 May 2021
Abstract
Purpose
The authors investigate the growth–inequality relationship, using panel data from 13 Southern African Development Community (SADC) countries over the period 1990–2015, to test the validity of the Kuznets and Tribble theories. Furthermore, the authors seek to determine the threshold level at which excessive growth hampers inequality.
Design/methodology/approach
The panel smooth transition regression (PSTR) model has several stages. The authors applied the Lagrange multiplier (LM) test to find the appropriate transition variable amongst all candidate variables, to assess the linearity between economic growth and income inequality and to find the sequence for selecting the order m of the transition function. The authors then estimated the PSTR model, but before facilitating the results, the authors first used the wild cluster bootstrap (WCB)–LM-type test to assess the appropriateness of the selected transition.
Findings
The authors found that at lower growth, income inequality tends to be lower, while if growth increases above US$8,969, inequality tends to increase in the SADC region. The findings combine into a U-shaped relationship, contradicting the Kuznets and Tribble theories.
Originality/value
The contribution of this paper is that it becomes the first to provide the threshold level at which excessive growth increases inequality in the selected countries. This study proposes that policymakers should focus on activities aimed at stimulating growth, in other words, activities such as spending more on infrastructure, drawing up a suitable investment portfolio and spending on technological investment for countries that are below US$8,969. An improvement in these activities will create job opportunities, which in turn will add to economic growth and thus lead to lower income inequality and better social cohesion.
Keywords
Acknowledgements
This paper is based on the author's master's work, therefore, his master's work was funded by Moses Kotane Institute is hereby acknowledged. Opinions expressed and conclusions arrived at, are those of the author. The author extends his warm appreciation and grateful thanks to Ntombifuthi Buthelezi for her motherhood and lovely-hood throughout the work writing; the author is grateful to this beautiful heart for instilling the passion and energy to keep working hard on this paper. The author also thanks the anonymous reviewers for their valuable comment.
Citation
Zungu, L.T., Greyling, L. and Mbatha, N. (2021), "Economic growth and income inequality: a non-linear econometrics analysis of the SADC region, 1990–2015", African Journal of Economic and Management Studies, Vol. 12 No. 2, pp. 285-301. https://doi.org/10.1108/AJEMS-09-2020-0465
Publisher
:Emerald Publishing Limited
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