The Effects Of Financial Development On Income Inequality In Sub-saharan Africa

As income inequality will lead to weak regional economic growth and increased poverty,how to reduce the gap between the wealthy and the poor has gradually become the focus of governments around the world.Existing scholars have found a correlation between financial development and income inequality.However,owing to the lack of human capital and physical capital,the financial industry is relatively backward in Sub-Saharan Africa so that it is difficult to achieve the financial development level in other countries.Therefore,the research conclusions deduced with samples as developed nations in alleviating Sub-Saharan Africa the applicability of the income inequality is questionable.Thus,this study will take 27 Sub-Saharan African countries as samples and explore the impact of financial development levels on income inequality in the region based on panel data from 2000 to 2015.First of all,in this paper,the research related to the financial development and income inequality has been reviewed from two perspectives of linear and nonlinear relations,respectively;the former is subdivided into financial development will rise/reduce income inequality,and the latter is subdivided into(inverted)U-shaped relationships between financial development and income inequality.On this basis,combined with the characteristics of SubSaharan Africa,this study proposed the hypotheses to be tested.Secondly,based on the data of WDI2018 and 2020,IFS2018,and SWIID2016,this study uses four indicators namely money supply,private credit,liquid liabilities,and bank deposits respectively to determine the level of financial development and uses the Gini coefficient to measure income inequality.GMM model was used for regression estimation and robustness test to verify the hypothesis.Furthermore,this thesis explores the moderating effect of language,a non-institutional factor,and the Belt and Road Initiative on the relationship between financial development and income inequality in Sub-Saharan Africa,and the tests are based on the 2SLS model.The results show that:(1)financial development in Sub-Saharan Africa helps to reduce income inequality;(2)In Francophone sub-Saharan Africa,liquid debt and private credit help reduce income inequality;(3)The Belt and Road Initiative doesn’t aggravate the effect of financial development on income inequality.The results of this study provide theoretical guidance and empirical evidence to instruct countries in sub-Saharan Africa to decrease income inequality.