Income Inequality in Africa: Exploring the Interaction Between Urbanization and Governance Quality

Abstract

While many studies have examined the influence of urbanization on income inequality, the study on the moderating effect of governance on the relationship between urbanization and income inequality remains quite inexistent. To fill this gap in the literature, the study examines the moderation of governance quality on the influence of urbanization on income inequality in 46 African economies from 1996 to 2020. A two stage system GMM estimation approach has been used to achieve this goal. The results unveil that the impact of urbanization on income inequality is positive and significant, meaning that increase in urbanization exacerbates income inequality in Africa. However, the results show that the improvement of governance quality could contribute to improve income distribution in urban areas. Interestingly, the results show that improving governance quality in Africa could contribute to spurring a positive urbanization which could contribute to promote urban economic growth and reduce income inequality.