End of Apartheid, Not of Inequality: The Slow Transition in a Segregated Economy

Despite the formal end of Apartheid in 1994, South Africa remains one of the most unequal countries in the world. This paper investigates the mechanisms behind this persistence of inequality by developing a spatial dynastic model with heterogeneous agents, incomplete markets, and endogenous choices over education, occupation, savings, and location. Drawing on newly assembled micro-geographic data, we document a shift in inequality from being primarily across races to increasingly within the Black population, with spatial segregation — especially the legacy of Townships — playing a key role. Our model, disciplined by detailed spatial and socioeconomic data, captures the slow intergenerational convergence in education and occupational outcomes observed in post-Apartheid South Africa. It shows how inherited spatial disadvantages — through high commuting costs, disparities in school quality, and limited access to credit — continue to shape households’ educational, occupational, and locational choices, reinforcing inequality long after formal legal barriers have been removed. Quantitatively, we find that removing persistent spatial distortions in Townships accelerates the transition to a race-blind equilibrium by 40% and reduces income inequality by 10%.