Abating income inequality with financial and institutional quality instruments in Sub-Saharan Africa region

In Africa, achieving the 10th goal of the United Nations Sustainable Development Goals which mainly addresses reducing inequalities, cannot be more urgent task confronting the continent’s governing institutions. With this lingering challenge in Africa and arguably propelled by significant gap in institutional performance, this investigation is centered on further exploring the drivers of income inequality by employing a macro panel dataset covering 20 Sub-Saharan Africa countries. By employing range of explanatory variables including economic growth, financial development, and variables that measure institutional performance, the findings confirm the implied hypothesis, indicating that economic growth is nonlinearly associated with income inequality. In addition, we established that the effect of financial development on income inequality varies across countries according to the level of political institutions including government stability and bureaucracy quality. This is explained by the coefficient for the interaction between financial development and institutional indicators which suggests that stronger institutions characterized by stable governments and efficient bureaucratic processes tend to foster the equitable distribution of income. The implication is that the relationship between financial factors and income inequality is largely dependent on the quality of institutions. Further result outcome indicates that globalization should not be neglected in addressing income inequalities.