The impact of Economic Freedom and Democracy on Income Inequality: Empirical Evidence from Sub-Saharan African Countries
DOI:
https://doi.org/10.14738/abr.1003.11641Abstract
Throughout our study entitled the impact of economic freedom and democracy on Income Inequality: empirical evidence from Sub-Saharan African countries. We have demonstrated that the economic freedom which is defined as the elementary right of all humans to have control on his or her own labor and property and an important impact on the economic growth. Individuals have the freedom to work, to produce, to consume and to save or invest the way they want in an economically free society. We use the measure of Fraser Institute's economic freedom from the world summary index (EF). A composite of five major sub-indices: Access to sound money index (SM), Freedom to trade internationally index (FT), Government size index (GV), legal structure and security of property rights index (PR), and regulation of credit, labor and business index (RG). The results show that the Freedom to trade internationally index (FT), the Government size index (GV), the regulation of credit, labor and business index (RG) have negative impact on the income inequality. Concerning the Governance, Government Effectiveness, Rule of Law, and Regulatory Quality is negatively related to Income Inequality. Nevertheless, the Control of Corruption and the coefficient of Political Stability and Absence of Violence have a positive impact on Income Inequality. The stability promotes the income inequality and through the protest and demonstration by the least privileged leads the government to reconsider the system of ruling. Our control variables such as economic growth and population throughout the four estimations they show none significance with the Income Inequality. So basically the economic growth doesn’t affect the income inequality in Sub-Saharan Africa. As Africa financial institutions, the Banks have a clear mandate to support the Regional Communities, to strengthen strategies and to lower the income inequalities across countries and within countries. The inclusive growth plans and agenda of the Banks and their new Long Term Strategy will position the Bank as a leading institution to promote activities that foster economic growth in an inclusive
References
Acemoglu, D. and J.A. Robinson, (2010). Why is Africa poor? Economic History of Developing Regions, Vol. 25, No. 1, pp. 21-50.
Acemoglu, D., S. Johnson and J.A. Robinson, (2001). The colonial origins of comparative development: an empirical investigation.
AfDB’s Human Capital Development Strategy 2012-2016, (2012). Human Development Department. African Development Bank.
AfDB Market Brief, (2011), “The Middle of the Pyramid: Dynamics of the Middle Class in Africa”, The Chief Economist Complex. African Development Bank.
African Economic Outlook (2011). African Development Bank.
Africa Development Indicators, (2008/2009), “Youth Employment in Africa: The Potential, the Problem, the Promise”, World Bank.
Africa Progress Panel, (2014). Grain Fish Money: Financing Africa’s Green and Blue Revolutions.
Altman, M, (2008). How much economic freedom is necessary for economic growth? Theory and evidence. Economics Bulletin, 15, 1–20.
Alwy, A. and S. Schech, (2004). Ethnic inequalities in education in Kenya. International Education Journal, Vol. 5, No. 2.
American Economic Review, No. 91, pp. 1369-1401.
Anyanwu, J. C. (2011), “International Remittances and Income Inequality in Africa”. Working Paper Series N°135. African Development Bank.
Appleton, S. (1999). Changes in poverty in Uganda, 1992-1997. Economic Series Working Papers, WPS/1999-22. University of Oxford, Department of Economics.
Ashby, N., and R. Sobel. (2008). Income inequality and economic freedom in the U.S. states. Public Choice 134:
Ashby, N., A. Bueno, and F. McMahon. (2011). Economic Freedom of North America 2011. Vancouver, BC: The Fraser Institute.
Atkinson, A.B. (1983). The economics of inequality. Oxford: Clarendon Press.
Ayla Ogus Binatli (2011), Growth and Income Inequality: A Comparative Analysis.
Barro, R.J. and Sala-i-Martin, X. (1992). Public finance in models of economic growth, Review of Economic Studies 59(4): 645-661.
Barro, R.J. and Lee, J.-W. (1993). International comparisons of educational attainment. Journal of Monetary Economics 32(3): 363-394.
Berggren, N. (1999). Economic freedom and equality: Friends or foes? Public Choice 100: 203-223.
Berggren, N. (2003). The benefits of economic freedom: A survey. The Independent Review 8(2): 193-211.
Bhorat, H. (2013). The Challenge of Job Creation: Input to the Post-2015 HLP Agenda. Cape Town, Development Policy Research Unit, University of Cape Town. (Available upon request) 230
Bigsten, A. and A. Shimeles. (2004). Prospects for pro-poor growth in Africa. UNU-WIDER Research Paper No. 2004/02.
Blanchflower, D.G., Oswald, A.J., (2004). Well-being over time in Britain and the United States. Journal of Public Economics 88, 1359–1386.
Bratton, M. and N. van de Walle. (1997). Democratic Experiments in Africa: Regime transitions in comparative perspective. New York, Cambridge University Press.
Bulte, E. H., R. Damania and R.T. Deacon. (2005). Resource intensity, institutions, and development. World Development 33(7), 1092-1044.
Canagarajah, S. and S. Thomas. (2001). Poverty in a wealthy economy. International Monetary Fund. IMF Working Papers, 02/114.
Carter, J. (2006). An empirical note on economic freedom and income inequality， Public Choice 130: 163-177.
Clark, J., and R. Lawson. (2008). The impact of eco-nomic growth, tax policy and economic freedom on income inequality. The Journal of Private Enter-prise 24(1): 23-31.
Cox, M., and R. Alm. (1995). By Our Own Boostraps: Economic Opportunity & the Dynamics of Income Distribution. Federal Reserve Bank of Dallas, Annual Report.
Davis, O.A. and Wu, W. (1996). Measuring economic freedom,Unpublished manuscript.
Dawson, J. W. (1998). Institutions, investment, and growth: New cross-country and panel data evidence. Economic Inquiry, 36,603–619.
De Haan, J., Lundstro ̈m, S., & Sturm, J. E. (2006). Market-oriented policies and economic growth: A critical survey. Journal of Economic Surveys, 20(2), 157–192.
De Haan, J., & Sturm, J. E. (2000). On the relationship between economic freedom and economic growth. European Journal of Political Economy, 16(2), 215–241.
De Vannsay, X. and Spindler, Z.A. (1994). Freedom and growth: Do constitutions matter? Public Choice 78(3-4):
Deininger, K. and Squire, L. (1996). Measuring income inequality: A new database. World Bank Economic Review 10(3): 565-591.
Demombynes, G. and J.G.M. Hoogeveen. (2004). Growth, inequality, and simulated poverty paths for Tanzania, 1992-2002. World Bank Policy Research Working Paper, 3432.
Dolan, P., Peasgood, T., White, M., (2008). Do we really know what makes us happy? A review of the economic literature on the factors associated with subjective well-being. Journal of Economic Psychology 29, 94–122.
Fölster, S. and Trofimov, G. (1996). Does equality promote growth? Working Paper No. 461, The Industrial Institute for Economic and Social Research, Stockholm.
Frey, B.S., Stutzer, A., (2002). What can economists learn from happiness? Journal of Economic Literature 40, 402–435.
Galbraith, J., and T. Hale. (2006). State income inequality and presidential election turnout and outcomes. Working Paper, The University of Texas at Austin.
Graafland, J. J., & Compen, B. (2015). Economic freedom and life satisfaction: Mediation by income per capita and generalized trust. Journal of Happiness Studies, 16(3), 789–810
Gwartney, J.D., Lawson, R.A., (2004). Economic Freedom of the World Annual Report. Fraser Institute, Vancouver, B.C.
Gwartney, J.D., Lawson, R.A., Holcombe, R.G., (1999). Economic freedom and the environment for economic growth. J. Inst. Theor. Econ. 155, 643–663.
Gwartney, J.D., Lawson, R. and Block, W. (1996). Economic freedom of the world: 1975- 1995. Vancouver, BC: The Fraser Institute.
Gyimah-Brempong, K. (2002), “Corruption, economic growth, and income inequality in Africa”, Economics of Governance, 3: 183–209, Springer-Verlag.
Heston, A. and Summers, R. (1991). The Penn world table (Mark 5): An expanded set of international comparisons, 1950-1988. Quarterly Journal of Economics 106(2): 327-368.
Kaldor, N., (1957). A model of economic growth. Econ. J. 67, 591–624.
Kayizzi-Mugerwa, S. (2001), “Globalization, growth and income inequality: the African experience”. Working paper, N°186. OECD Development Center.
Keynes, J.M., (1920). The Economic Consequences of the Peace. Macmillan and Co. Limited, London.
Krieger, T., Meierrieks, D., (2016). Political capitalism: the interaction between income inequality, economic freedom and democracy. Eur. J. Polit. Econ. 45, 115–132.
Kuznets, S., (1955). Economic growth and income inequality. Amer. Econ. Rev. 45, 1–28.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., Vishny, R., (1999). The quality of government. J. Law, Econ., Organ. 15, 222–279.
Leigh, A., (2007). How closely do top income shares track other measures of inequality? Econ. J. 117, F619–F633.
Madsen, J.B., Islam, M.R., Doucouliagos, H., (2018). Inequality, financial development and economic growth in the OECD, 1870–2011. Eur. Econ. Rev. 101, 605–624.
Marrero, G.A., Rodríguez, J.G., (2013). Inequality of opportunity and growth. J. Dev. Econ. 104, 107–122.
McBride, M., (2001). Relative-income effects on subjective well-being in the cross section. Journal of Economic Behavior and Organization 45, 251–278.
McCulloch, N., B. Baulch and M. Cherel-Robson. (2000). Poverty, inequality and growth in Zambia during the 1990s. Working Paper. Institute for Development Studies, University of Sussex.
McMillan, M., D. Rodrik and I. Verduzco-Gallo. (2014). Globalisation, structural change, and productivity growth, with an update on Africa. World Development 63, 11-32.
Mehlum, H., Moene, K., Torvik, R., (2006). Institutions and the resource curse. Econ. J. 116, 1–20.
MIller, T., Kim, A.B., (2016). 2016 Index of Economic Freedom: Promoting Economic Opportunity and Prosperity. Heritage Foundation, Washington, D.C.
Miller, T., Kim, A.B., (2017). 2017 Index of Economic Freedom: Institute for Economic Freedom. Heritage Foundation, Washington, D.C.
Murphy, R.H., (2015). The impact of economic inequality on economic freedom. Cato J. 35, 117–131.
Neves, P.C., Afonso, Ó., Silva, S.T., (2016). A meta-analytic reassessment of the effects of inequality on growth. World Dev. 78, 386–400.
Neves, P.C., Silva, S.T., (2014). Inequality and growth: Uncovering the main conclusions from the empirics. J. Dev. Stud. 50, 1–21.
OECD, (2011). Divided We Stand: Why Inequality Keeps Rising. OECD Publishing, Paris.
OECD, (2015). In It Together: Why Less Inequality Benefits All. OECD Publishing, Paris.
Oxfam, (2014). Working For the Few: Political Capture and Economic Inequality. Oxfam GB for Oxfam International, Oxford.
Oxfam, (2017). An Economy for the 99 Percent. Oxfam GB for Oxfam International, Oxford.
Papyrakis, E., (2017). The resource curse - what have we learned from two decades of intensive research: introduction to the special issue. J. Dev. Stud. 53, 175–185. 232
Perez-Moreno, S., Angulo-Guerrero, M.J., (2016). Does economic freedom increase income inequality? Evidence from the EU countries. J. Econ. Policy Reform. 19, 327–347.
Perotti, R., (1996). Growth, income distribution, and democracy: what the data say. J. Econ. Growth 1, 149–187.
Persson, T., Tabellini, G., (1994). Is inequality harmful for growth? Amer. Econ. Rev. 84, 600–621.
Piketty, T., (2014). Capital in the Twenty-First Century. Belknap Press of Harvard University Press, Cambridge.
Piketty, T., Zucman, G., (2014). Capital is back: wealth-income ratios in rich countries, 1700–2010. Q. J. Econ. 129, 1255–1310.
Ovaska, T., & Takashima, R. (2006). Economic policy and the level of self-perceived well-being: An international comparison. Journal of Socio-Economics, 35,308–325.
Ravallion, M. (1994). Can high-inequality developing countries escape absolute poverty? Economics Letters 56,
Ravallion, M. and S. Chen. (2007). China’s (uneven) progress against poverty. Journal of Development Economics 82, 1-42.
Ravallion, M. and G. Datt. (1996). How important to India’s poor is the sectoral composition of economic growth. The World Bank Economic Review 10(1), 1-25.
Reed, W.R., (2015). On the practice of lagging variables to avoid simultaneity. Oxford Bull. Econ. Stat. 77, 897–905.
Rivera-Batiz, F.L., Rivera-Batiz, L.A., (2002). Democracy, participation, and economic development: an introduction. Rev. Devel. Econ. 6, 135–150.
Rose, A.K., (2006). Size really doesn't matter: in search of a national scale effect. J. Jpn. Int. Econ. 20, 482–507.
Rotman, D., (2014). Technology and Inequality. MIT Technology Review, October 21.
Scully, G.W., (2002). Economic freedom, government policy and the trade-off between equity and economic growth. Public Choice 113, 77–96.
Smith, A., (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. Methuen & Co. Ltd., London.
Sokoloff, K.L., Engerman, S.L., (2000). History lessons: institutions, factors endowments, and paths of development in the new world. J. Econ. Perspect. 14, 217–232.
Solow, R.M., (1956). A contribution to the theory of economic growth. Q. J. Econ. 70, 65–94.
Sonin, K., (2003). Why the rich may favor poor protection of property rights. J. Compar. Econ. 31, 715–731.
Sturm, J.-E., De Haan, J., (2015). Income inequality, capitalism, and ethno-linguistic fractionalization. Amer. Econ. Rev. 105, 593–597.
Transparency International (2011), “Corruption Perceptions Index 2011”. World Development Indicators (2011), World Bank.
UN (United Nations). (2010). World Population Projections: The 2010 Revision. New York, United Nations.
UNDP (United Nations Development Programme) Regional Bureau for Africa. (2016). Africa Human Development Report 2016: Accelerating Gender Equality and Women’s Empowerment in Africa. New York.
UNU-WIDER (2014) United Nations University World Institute for Development Economics Research World Income Inequality. Database V3.0B. www.wider.unu.edu/research/WIID3-0B/en_GB/database/.
Van de Walle, N. (2009). The institutional origins of inequality in sub-Saharan Africa. The Annual Review of Political Science 12, 307-327.
Vigdor, J. L. (2004). Community composition and collective action: analyzing initial mail response to the 2000 Census. The Review of Economics and Statistics 86, 303-12.
Veenhoven, R. (2000). Freedom and happiness. In E. Diener & E. M. Suh (Eds.), Culture and subjective wellbeing (pp. 257–288). Boston: MIT Press.
WEF, (2017). The Global Risks Report 2017, 12th ed. World Economic Forum, Geneva.
Williamson, C.R., Mathers, R.L., (2011). Economic freedom, culture, and growth. Public Choice 148, 313–335.
Windmeijer, F., (2005). A finite sample correction for the variance of linear efficient two-step GMM estimators. J. Econom. 126, 25–51.
World Bank (2013). Africa’s Pulse: An Analysis of Issues Shaping Africa’s Economic Future. Washington, D.C.
World Bank (2014a). An analysis of issues shaping Africa’s economic future. Africa’s Pulse. Vol. 10, October 2014. Washington, DC., World Bank.
World Bank (2014b).. World Development Indicators. Washington, D.C.: The World Bank. http://data.worldbank.org/data-catalog/world-development-indicators.
World Bank (2014c). Povcalnet 2014. Washington, D.C.: The World Bank.
Young, A.T., Zuleta, H., (2013). Do Unions Increase Labor's shares? Evidence from Us Industry-Level Data. Mimeo.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Sabi Couscous Mouhamadou Nazirou
This work is licensed under a Creative Commons Attribution 4.0 International License.
