The Effect of Human Capital on Income Inequality: Evidence from Selected Sub-Saharan Countries
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Date
2023-09-06
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Addis Ababa University
Abstract
The study explores the impact of human capital on income inequality in 24 selected Sub-Saharan
African countries during the period from 2010 to 2020. The study used Gini coefficient as a
measure of income inequality. To conduct the econometric data analysis, a two-step System
Generalized Method of Moments (GMM) was employed. Other explanatory variables, including
Domestic Credit to the Private Sector, GDP per capita, Inflation, and Population Growth, were
controlled for in the analysis. The results obtained from the two-step system GMM indicate that
human capital has a significant positive effect on income inequality. This implies that as human
capital improves within a society, income inequality worsens. The positive relationship between
the Gini coefficient and human capital can be attributed to the highly unequal distribution of
access to and quality of education in Sub-Saharan Africa. Another variable found to have a
significant effect is inflation. The findings demonstrate that inflation significantly and negatively
impacts income inequality in Sub-Saharan Africa. Overall, this study provides valuable insights
into the relationship between human capital, inflation, and income inequality in Sub-Saharan
Africa, shedding light on the factors that contribute to income disparities within the region
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Keywords
Human capital, Sub Saharan Africa, Income Inequlity