Development, Poverty and Inequality: A Spatial Analysis of South African Provinces

This paper analyses the relationship between poverty, growth and income inequality in nine South African provinces (Western Cape, Eastern Cape, Northern Cape, Free State, KwaZulu-Natal, North-West, Gauteng, Mpumalanga and Limpopo) with a spatial econometric model using data from the period 1996-2013. There is a well-established literature that relates average income rise of the economy with increase in average income of the poorest population. However poverty continues to be predominant in South Africa, and in general, Africa. This persistence of poverty signifies that income rise is not sufficient to decrease poverty. This paper investigates this issue using several spatial econometric models. We find that, poverty is increasing in South Africa at decreasing rate. Moreover the economic variables (income per capita, GDP growth and employment) is also decreasing poverty. Therefore it appears that South Africa is on the right road to decrease poverty, but the spatial spillovers on poverty signifies that the government needs an active anti-poverty policy to tackle this persistent problem, since it cannot rely on economic growth alone to overcome it. Our result is robust to alternative estimation strategy which controls for endogeneity – something though prevalent in this literature, has not been generally taken into account in various estimations.