The Dynamics of Economic Globalization and Income Inequality in Sub-Saharan African Countries: An Empirical Insight from Two Stage Least Square and Fixed Effect Approach

Abstract

Many empirical studies have examined the nexus between economic globalization and income inequality. However, findings are controversial, especially for developing countries, which require further investigation. This study, therefore, aims to examine the effect of economic globalization on income inequality using unbalance panel data in 19 Sub Saharan African countries (SSA) from 2000 – 2015.  Due to endogeneity problem and cross sectional dependence, the model was analyzed using a two-stage least square (2SLS) regression and the fixed effect model with Driscoll-Kraay standard errors regression respectively. The findings reveal that FDI, Trade openness, and ICT development are positive and significantly link to income inequality while remittances have a negative and significant effect. This is an indication that economic globalization indicators (FDI, Trade openness, ICT) have failed to bring a fairer income distribution in these countries while remittances have contributed to income distribution. On basis of this conclusion, policymakers should pursue policies, which will enhance a balanced development and improvement in the socioeconomic welfare of the population by improving measures of income distribution.