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The impact of liberalisation policies on income inequality in African countries

Author

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  • Michael Enowbi Batuo
  • Simplice A. Asongu

Abstract

Purpose - – The purpose of this paper is to investigate the impact of liberalisations policies on income inequality in African countries. Examining whether the liberalisations policies have affected the income distribution of everyone equally or they only assist those who are already relatively well off; leaving the poor behind. The authors also examine how they affect income distribution in the various countries within the continent, and their effect on short and long runs? Design/methodology/approach - – First, The authors used the before and after comparison, to examine the response of the level of income inequality and the volatility of income inequality from the time that financial or trade liberalisations took place in each country. Next, the authors used the panel data techniques model for a sample of 26 African countries spanning the period 1996-2010 to investigate the effect of liberalisation policies on income distribution. Findings - – The authors find that financial liberalisation has a levitated income-redistributive effect with the magnitude of the de jure measure (KAOPEN) higher than that of the de facto measure (FDI); that exports, trade and “freedom to trade” have an equality incidence on income distribution; and that institutional and/or political liberalisation has a negative impact and; economic freedom has a negative income-redistributive effect, possibly because of the weight of its legal component. Practical implications - – In general, this study provides a variegated picture, findings tend to suggest that overall the reforms have increased income inequality in African countries. It would be risky to prescribe a general policy because of the diversity of the country. However, African countries’ better performance can be attributed to a combination of policies. For example avoiding the Marco price mixture of real exchange rate appreciation and high domestic interest rates; having capital controls and prudential financial regulations which would enable them to contain the negative consequence of capital flows; putting a system in place to direct export between African countries and encouraging sub regional integration agreement. The government should put in place countervailing social policies in order to withstand social coherence and smooth the adverse transition of liberalisation policies. Originality/value - – Three main elements of originality clearly standout: first, the estimation approach used in the paper considers both short- and long-run effects of in empirical strategy; second, an exhaustive plethora of liberalisation policies (trade, financial, political and institutional are considered); and third, recent data are used to appraise second generation reforms for more updated policy implications.

Suggested Citation

  • Michael Enowbi Batuo & Simplice A. Asongu, 2015. "The impact of liberalisation policies on income inequality in African countries," Journal of Economic Studies, Emerald Group Publishing, vol. 42(1), pages 68-100, January.
  • Handle: RePEc:eme:jespps:v:42:y:2015:i:1:p:68-100
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    Cited by:

    1. Kodila-Tedika, Oasis & Asongu, Simplice A. & Cinyabuguma, Matthias & Tchamyou, Vanessa S., 2017. "Financial development and prehistoric geographical isolation: global evidence," Financial History Review, Cambridge University Press, vol. 24(03), pages 283-306, December.
    2. Simplice A Asongu, 2014. "On the substitution of institutions and finance in investment," Economics Bulletin, AccessEcon, vol. 34(3), pages 1557-1574.
    3. Simplice Asongu & Uchenna Efobi & Ibukun Beecroft, 2015. "Inclusive Human Development in Pre-crisis Times of Globalization-driven Debts," African Development Review, African Development Bank, vol. 27(4), pages 428-442, December.
    4. Olena SOKOLOVSKA, 2016. "Trade freedom and revenue from trade taxes: a cross-country analysis," Vestnik of the St. Petersburg University. Series 5. Economics Вестник Санкт-Петербургского университета. Серия 5. Экономика, CyberLeninka;Федеральное государственное бюджетное образовательное учреждение высшего образования «Санкт-Петербургский государственный университет», issue 2, pages 52-67.
    5. Asongu, Simplice & De Moor, Lieven, 2015. "Recent advances in finance for inclusive development: a survey," MPRA Paper 67299, University Library of Munich, Germany.
    6. Asongu Simplice, 2014. "Fresh Patterns of Liberalization, Bank Return and Return Uncertainty in Africa," Working Papers of the African Governance and Development Institute. 14/004, African Governance and Development Institute..
    7. Simplice A Asongu & Lieven De Moor, 2017. "Financial Globalisation Dynamic Thresholds for Financial Development: Evidence from Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 29(1), pages 192-212, January.
    8. Batuo, Michael & Mlambo, Kupukile & Asongu, Simplice, 2018. "Linkages between financial development, financial instability, financial liberalisation and economic growth in Africa," Research in International Business and Finance, Elsevier, vol. 45(C), pages 168-179.
    9. Simplice A. Asongu & Jacinta C. Nwachukwu, 2018. "Recent finance advances in information technology for inclusive development: a systematic review," Netnomics, Springer, vol. 19(1), pages 65-93, October.
    10. repec:eee:jrpoli:v:53:y:2017:i:c:p:283-299 is not listed on IDEAS
    11. Asongu, Simplice A. & Koomson, Isaac & Tchamyou, Vanessa S., 2017. "Financial globalisation uncertainty/instability is good for financial development," Research in International Business and Finance, Elsevier, vol. 41(C), pages 280-291.
    12. Simplice A. Asongu, 2017. "The Comparative Economics of Knowledge Economy in Africa: Policy Benchmarks, Syndromes, and Implications," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 8(2), pages 596-637, June.
    13. Simplice A. Asongu & Jules R. Minkoua N., 2018. "Dynamic openness and finance in Africa," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(4), pages 409-430, May.
    14. Simplice Asongu & Jacinta C. Nwachukwu, 2017. "Recent finance advances in information technology for inclusive development: a survey," Working Papers of the African Governance and Development Institute. 17/009, African Governance and Development Institute..
    15. Folarin, Oludele & Asongu, Simplice, 2017. "Financial liberalization and long-run stability of money demand in Nigeria," MPRA Paper 81190, University Library of Munich, Germany.
    16. Simplice A. Asongu & Oludele E. Folarin & Nicholas Biekpe, 2018. "The Long Run Stability of Money Demand in the Proposed West African Monetary Union," Working Papers of the African Governance and Development Institute. 18/052, African Governance and Development Institute..

    More about this item

    Keywords

    Africa; Trade; Income inequality; Poverty; Liberalization policies; Income redistribution;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F3 - International Economics - - International Finance
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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