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Production, Inequality and Poverty linkages in South Africa

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  • Nicholas Ngepah

Abstract

The Kuznets inequality-development hypothesis can be tested with time-series data rather than the cross-section analyses found in earlier literature. Single-country time-series analysis cannot be done without addressing endogeneity between output and inequality. South Africa has been under-researched in this area due to a lack of data. Recent data released by the Presidency of South Africa makes such analysis possible. Besides, the use of a single inequality index in such a multiracial society is likely to capture only average effects. This paper jointly estimates production, inequality (decomposed by sub-group) and poverty with 3sls using South African data. The findings suggest that production is affected negatively by between-group inequality. Credit constraints and interracial tensions are possible causes, generating significant adverse effects that stifle economic productivity. Within-group inequality enhances production, possibly due to within-group social capital. There is evidence of an inverted U-shape relationship between per capita income and between-group inequality, but a U-shaped one between per capita income and within-group inequality. However due to the effects of the active post-apartheid policies — which reduce between-group inequality, but increase within-group inequality — it is doubtful if this relationship is capturing a Kuznets process. There is a significant poverty-increasing (reducing) effect of total and between-group inequalities (output). The abjectly poor seem to suffer more from inequality than others do. Policy efforts have to focus on reducing between group inequality.

Suggested Citation

  • Nicholas Ngepah, 2011. "Production, Inequality and Poverty linkages in South Africa," Working Papers 206, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:206
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    File URL: http://www.econrsa.org/node/229
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    References listed on IDEAS

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    1. Servaas van der Berg & Ronelle Burger & Rulof Burger & Megan Louw & Derek Yu, 2005. "Trends in poverty and inequality since the political transition," Working Papers 01/2005, Stellenbosch University, Department of Economics.
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    Keywords

    Production; income distribution; poverty; 3sls; South Africa;

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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