Human Capital and Income Inequality in Africa: An Empirical Panel Data Study

Abstract

This paper attempts to provide empirical evidence on the contribution of human capital in reducing income inequality for a panel of 15 African countries over the period 1980 -2014. The dynamic panel estimation techniques used to bring out important results. Firstly, the expansion of education in the countries concerned does not seem to have been accompanied by a reduction in income inequalities. Secondly, our results confirm the differential impact of education levels of income inequality. Indeed, while the expansion of secondary education seems to have been positively associated with income inequality, the expansion of primary and tertiary education seems to have reduced inequality, albeit very slightly, within the countries in our sample. Thirdly, our results show that more than the expansion of education, it is rather the reduction of educational inequalities that seems to be the determining factor in reducing income inequalities in the countries concerned. In addition to continuing efforts to expand education, particularly at the primary level, these results suggest the need to improve the quality of education, which in turn will raise its performance and ultimately reduce income inequalities. Similarly, accelerating the process of structural transformation of African economies would, through greater use of skilled labor, increase the yield from higher levels of education and, ultimately, a more egalitarian distribution of income.

Keywords: Educational inequality, education level, income inequality, Africa, GMM system.

Classification JEL: D30, I21, O55

Paper type: Empirical Research