Inequality and the Translation of Economic Growth into Human Development Evidence from Africa

Abstract

Considering the level of inequality (GINI) and its importance in economic performance and the attainments of human development (HD), this paper examines the role of inequality in the translation of economic growth (GDPG) to HD. The study was conducted using 39 African countries from the period of 1980 to 2015. A change in non-income HD measure (△HD) comprising life expectancy at birth and education with a five-year difference was computed. An average for every five-year period corresponding to the various five-year intervals for the △HD was obtained for GINI and GDPG. The study employed panel data techniques such as random effect (RE), fixed effect (FE) and system generalized method of moments (GMM) in addressing its objectives with emphasis on the system GMM results due to potential endogeneity between the HD measure and economic growth. These estimations were carried out for the human development index (HDI) for comparison purposes. Based on Model 5— which is the main model of the study as it features the interaction between GINI and GDPG, GINIGDPG — RE, FE and system GMM results for the △HD measure find that inequality negatively influenced the translation of economic growth to HD over the period of study. Model 5 of the △HDI result, on the other hand, showed only a significant negative coefficient for the interactive variable, GINIGDPG, under the system GMM results, supporting the results of the △HD measure Furthermore, given the finding in Africa that inequality inhibits economic growth, coupled with the finding here that economic growth positively influences HD, the study finds a significant adverse impact of inequality on HD.