Nunoo, Jacob; Taale, F ancis; O o i, Isaac K.; Mwinlaa u, Pe e Yel ulme; Adama,
Adams Yakubu So ekuong
A icle
Human capi al and income inequali y in A ica: obus
go e nance syne gies and h esholds
Cogen Economics & Finance
P o ided in Coope a ion wi h:
Taylo & F ancis G oup
Sugges ed Ci a ion: Nunoo, Jacob; Taale, F ancis; O o i, Isaac K.; Mwinlaa u, Pe e Yel ulme;
Adama, Adams Yakubu So ekuong (2024) : Human capi al and income inequali y in A ica: obus
go e nance syne gies and h esholds, Cogen Economics & Finance, ISSN 2332-2039, Taylo &
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Human capi al and income inequali y in A ica:
obus go e nance syne gies and h esholds
Jacob Nunoo, F ancis Taale, Isaac K. O o i, Pe e Yel ulme Mwinlaa u &
Adams Yakubu So ekuong Adama
To ci e his a icle: Jacob Nunoo, F ancis Taale, Isaac K. O o i, Pe e Yel ulme Mwinlaa u &
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FINANCIAL ECONOMICS | RESEARCH ARTICLE
Human capi al and income inequali y in A ica: obus go e nance
syne gies and h esholds
Jacob Nunoo
a
, F ancis Taale
a
, Isaac K. O o i
b
, Pe e Yel ulme Mwinlaa u
a
and
Adams Yakubu So ekuong Adama
a
a
School o Economics, Uni e si y o Cape Coas , Cape Coas , Ghana;
b
School o Business, Na ional Uni e si y o I eland
Maynoo h, Co. Kilda e, I eland
ABSTRACT
I has been widely documen ed ha good go e nance educes income inequali y when
i c ea es a conduci e en i onmen o quali y human capi al de elopmen . This s udy
in es iga es he uncondi ional e ec s o human capi al on income inequali y and
explo es whe he ins i u ional quali y mechanisms o co up ion con ol and go e n-
men e ec i eness mode a e he ela ionship. Resul s om he ins umen al a iable
gene alised me hod o momen s es ima o and da a o an unbalanced panel da a o
36 A ican o e he pe iod 2010-2020, shows ha human capi al inc eases income
inequali y. Howe e , obus e idence om he in e ac i e analysis e eals ha co up-
ion con ol and go e nmen e ec i eness mi iga e he income inequali y-enhancing
e ec o human capi al. This s udy unde sco es he need o imp o e s uc u es and sys-
em go e nmen e ec i eness and co up ion con ol o human capi al de elopmen
o equalise income in A ica.
IMPACT STATEMENT
This s udy p o ides aluable insigh s in o he ela ionship be ween human capi al de el-
opmen and income inequali y in A ica, challenging he con en ional belie ha human
capi al alone educes inequali y. Using an ins umen al a iable gene alized me hod
o momen s es ima o and da a om 35 A ican coun ies o e he pe iod 2010-2020, he
esea ch inds ha human capi al, on i s own, ends o exace ba e income inequali y.
Howe e , he s udy also e eals ha e ec i e go e nance mechanisms, pa icula ly co -
up ion con ol and go e nmen e ec i eness, can mi iga e his ad e se e ec .
By highligh ing he c ucial ole o ins i u ional quali y in mode a ing he ela ionship
be ween human capi al and inequali y, his esea ch o e s ac ionable ecommenda ions
o policymake s. The indings unde sco e he impo ance o s eng hening go e nance
s uc u es o ensu e ha in es men s in human capi al con ibu e o mo e equi able
income dis ibu ion ac oss A ica. This s udy signi ican ly ad ances he discou se on go -
e nance, inequali y, and human capi al de elopmen in he con ex o A ican economies.
ARTICLE HISTORY
Recei ed 25 Ap il 2024
Re ised 27 Sep embe 2024
Accep ed 11 Oc obe 2024
KEYWORDS
A ica; co up ion; good
go e nance; human capi al;
income inequali y
SUBJECTS
De elopmen Policy;
Economics and
De elopmen ; Sus ainable
De elopmen ; De elopmen
S udies; De elopmen
Theo y; Heal h &
De elopmen ; Economics
JEL CODES
D31; D39; E02; E24;
G51; J31
1. In oduc ion
Income inequali y is one o he key challenges acing he wo ld oday (Blau, 2018; Wo ld Bank, 2020). As
a long-s anding economic and social issue, income inequali y is ecognised o e a d economic g ow h,
was e human esou ces, deepen po e y, and c ea e a a ou able en i onmen o he mani es a ion o
o he social ices (Al a edo e al., 2021; Assouad, 2023). Consequen ly, he Uni ed Na ions (2007)
desc ibes income inequali y as a p oblem ha equi es a global solu ion. Fo unequal and ma ginalised
socie ies, ecen e idence a i ms ha unde s anding he unde lying link be ween income inequali y and
human capi al can enhance sus ainabili y (Wo ld Bank, 2018,2020).
Whe eas income inequali y [hence known as IE] e e ywhe e is wo hy o in es iga ion, nowhe e is
knowledge on he IE and human capi al nexus mo e c i ical han in A ica. I o no hing a all, he
CONTACT Adams Yakubu So ekuong Adama [email p o ec ed] School o Economics, Uni e si y o Cape Coas , Cape Coas , Ghana
Supplemen al da a o his a icle can be accessed online a h ps://doi.o g/10.1080/23322039.2024.2417757.
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2417757
h ps://doi.o g/10.1080/23322039.2024.2417757
incidence o IE is mo e pe asi e in A ica han in he es o he wo ld and hence should na u ally
a ac mo e schola ly a en ion. Fo example, Odusola e al. (2017) ad anced ha nine y pe cen o he
unequal coun ies in he wo ld a e in A ica. Meanwhile, i has been p o en ha IE c ea es sha p dispa -
i ies in o he socioeconomic oppo uni ies including educa ion (Coady & Dizioli, 2018), heal h (Wilkinson
& Picke , 2006), ene gy (Gal in & Healy, 2020), employmen (Uni ed Na ions, 2007), p e e ences o
income edis ibu ion (Ro h & Wohl a , 2018), li e sa is ac ion (Su iyan a ako n & Chang, 2022) as well
as he quali y o public se ices (Bha acha ya e al., 2016). The dispa i ies in hese o he socioeconomic
oppo uni ies a e equally mo e p onounced and de as a ing in A ica han in o he con inen s (Wo ld
Bank, 2020). This unde sco es he ele ance o empi ical esea ch on he signi ican d i e s o IE and he
pa hways h ough which IE can be success ully add essed. In his s udy, we con ibu e o income equal-
isa ion by paying a en ion o he ole o good go e nance in enhancing he connec ion exis ing
be ween IE and human capi al. In ou candid opinion, a sus ainable solu ion o he IE p oblem is mo e
p obable i : (1) he economic and social en i onmen in which people ope a e is ai and iendly, and
(2) ci izens ha e equal capaci ies and/o skills o iden i y oppo uni ies, ake isks and o e come shocks.
The c i icali y o human capi al o income equali y lies in i s abili y o inc easing inno a ion and com-
pe i i eness in he labou ma ke . This is cle e ly a icula ed by Bu zynski e al. (2020) and Lindg en
e al. (2019) who eckoned ha in es men s in human capi al can add ess IE by inc easing economic
g ow h and c ea ing se e al sel - ein o cing posi i e ex e nali ies. This is mo e so conside ing he ple h-
o a o empi ical e idence e ealing ha in se ings whe e in es men in human capi al is high, economic
agen s end o con ibu e immensely o socioeconomic de elopmen h ough inc eased inno a ion and
enhanced p oduc i i y (Hanushek, 2013).
I is in his ligh ha A ican leade s ha e ag eed o inc ease he quali y o educa ion and heal hca e in
hei espec i e coun ies. Fo ins ance, Kenya, Ghana, Zimbabwe and Sou h A ica ha e all no only uni e -
salised access o basic educa ion bu ha e also implemen ed school eeding and subsidised heal hca e pol-
icies o hei ci izens gea ed owa ds enhancing he quali y o human capi al (Du lo e al., 2021). Despi e
hese e o s, conce ns abou he con ibu ion o human capi al o income equali y in A ica ha e been
aised. The i s ega ds he quali y o human capi al in he con inen . As epo ed by Wo ld Bank (2018),
h ee ou o e e y ou child en in A ica canno coun beyond 80 while 40 pe cen o hem a e unable o
sol e one-digi addi ion p oblems. Wi h espec o li e acy, 50 o 80 pe cen o child en in A ica can nei-
he ead no comp ehend a sho passage. The second has o do wi h A ica’s weak capaci y o checking
co up ion and inc easing he con ibu ion o human capi al o sha ed p ospe i y.
Taking cues om O o i e al. (2023), we a gue ha good go e nance can, bo h di ec ly and indi ec ly,
p omo e human capi al de elopmen and os e ai e income dis ibu ion. Pu di e en ly, good go e n-
ance is equi ed o c ea e e icien economic and social condi ions ha disman le inequali ies in skills,
abili ies and oppo uni ies o all o gain a ou ably om g ow h. We pay a en ion o wo go e nance
indica o s in his s udy: (i) go e nmen e ec i eness, (ii) con ol o co up ion. We keep abs on hese
wo go e nance dynamics as hei ele ance o ai e income dis ibu ion cu s ac oss esou ce alloca ion
and sound socioeconomic policies including eedom.
To begin wi h, go e nmen e ec i eness is essen ial o de e mining how esou ces a e alloca ed wi hin
he economy. Also, sound go e nmen e ec i eness in he o ms o social o e heads can d i e inclusi e
and sha ed g ow h (Asongu & Odhiambo, 2021). In ou candid iew, he ole o go e nmen e ec i eness in
he equalisa ion o incomes goes beyond he co ec ion o p ices o include he olling ou o policies, sys-
ems and amewo ks ha suppo inno a ion, dex e i y, and en ep eneu ship. The ole o con ol o co -
up ion o social p og ess has also been highligh ed in he li e a u e. Fo ins ance, Acemoglu and Robinson
(2010) ad anced ha e ec i e con ol o co up ion is i al o alloca ing he gains om g ow h and emo -
ing amewo ks ha hinde pe o mance. Howe e , conside ing he appa en lags in s uc u es o go e n-
men e ec i eness and con ol o co up ion in A ica (Doumbia, 2019; Ncho oung & Asongu, 2022), hese
plausible human capi al-go e nance syne gies o equi able income dis ibu ion could p o e elusi e.
Examining he li e a u e, we ind ha p e ious s udies ha e only explo ed he uncondi ional e ec o
human capi al de elopmen on income inequali y in A ica (Anyanwu e al., 2016; F ide ichs e al., 2023;
Jona han Gimba e al., 2021; Nabassaga e al., 2020; Van Leeuwen e al., 2012). A gla ing gap is ha hese
s udies ha e no examined he mode a ing e ec s o go e nmen e ec i eness and con ol in he ela ion-
ship be ween human capi al and income inequali y in A ica, lea ing a gap in unde s anding how hese
2 J. NUNOO ET AL.
ac o s in e ac o shape economic ou comes. Ou mo i a ion s ems om A ica’s weak s uc u es and sys-
ems o go e nmen e ec i eness and co up ion con ol, which can unde mine human de elopmen
e o s and by ex ension income inequali y. S uc u ed di e en ly, al hough a ple ho a o esea ch ha e
s udied he impac s o human capi al and go e nance on income dis ibu ion, igo ous empi ical con ibu-
ions in e oga ing whe he he o me in e ac s wi h he la e o equalise incomes in A ica emain
unknown. Finally, a conspicuous gap in li e a u e is ha p e ious s udies ha e no examined he sho o
long- e m bene i s o channelling esou ces in o he building o s uc u es ha ensu e e ec i e go e nance
and anspa ency in A ica. This s udy seeks o ill his oid in he IE li e a u e on A ica. Acco dingly, we
add ess h ee objec i es. Fi s , we examine he impac o human capi al on inocme inequali y in A ica.
Second, in e ac wi h human capi al o equalise incomes in A ica. Second, we in es iga e whe he co up-
ion con ol and go e nmen e ec i eness in e ac wi h human cap ial o educe income inequali y in A ica.
Ou esul s om ins umen al a iable eg ession model and mac oeconomic da a o 36 coun ies
o e he 1960–2020 pe iod e eal ha human capi al aids equi able income dis ibu ion in A ica.
Fu he , we ind co up ion con ol as an e ec i e means o p opelling human capi al owa ds income
equalisa ion ac oss he egion. Finally, we con i m ha he sho o long- e m income equali y bene i s
o channelling esou ces owa d con ol o co up ion a e ema kable.
This esea ch builds on he body esea ch examine he impac o human capi al de elopmen on
income inequali y in de eloping coun ies. The con ibu ion o his s udy o he ex an schola ship a e
wo old. Fi s and o emos , his s udy makes a unique con ibu ion by in es iga ing he con ingency
e ec o go e nmen e ec i eness and co up ion con ol mode a e he link be ween human capi al
and income inequali y in A ica. Unlike p e ious s udies ha p ima ily ocus on he di ec e ec s o
human capi al, he mode a ion analysis in his s udy is c i ical as i b ings o he o e he ex en o
which ins i u ion quali y a ec s he link be ween human capi al and income inequali y. Second, we es i-
ma e he h eshold e ec s o go e nmen e ec i eness and co up ion con ol in he ela ionship
be ween human capi al and income inequali y. This analysis is policy- ele an as i p o ides e idence
conce ning how imp o ing wo c i ical ins i u ional a iables –go e nmen e ec i eness and co up ion
–condi ions human capi al de elopmen o a ec income inequali y in A ica.
2. Li e a u e e iew
2.1. Theo e ical ela ionship be ween human capi al and income inequali y
The discou se on IE usually s a s wi h he uni ied heo y o inequali y and g ow h as he common poin
o heo e ical depa u e. As an amalgama ed concep , his heo y opines ha physical capi al and
human capi al accumula ions a e asymme ic in he de elopmen p ocess (Galo & Moa , 2004). The
asymme ic ela ionship be ween physical and human accumula ion inc eases he u ili y o equali y o
human capi al accumula ion in he p esence o c edi cons ain s and inequali y o physical capi al
accumula ion unde condi ions o highe ma ginal p opensi y o sa e.
Unlike physical capi al, whose con ibu ion o economic g ow h and de elopmen is no dependen on
how i is dis ibu ed ac oss he popula ion, human capi al is embedded in people and hus i s o al s ock is
la ge when i is widesp ead. The heo y u he s esses ha because physical capi al accumula ion is an
impo an d i e o economic g ow h in he ini ial phases o de elopmen , inequali y enhances he de el-
opmen p ocess by ans e ing sca ce esou ces o ne -sa ing capi al owne s. Bu as economic g ow h and
de elopmen ad ance, human capi al o e akes physical capi al as he p opelle o economic g ow h
because o he capi al-skills nexus. Al e na ely, he accumula ion o human capi al h ough educa ion, skills
aining and quali y heal hca e can make indi iduals compe i i e in he labou ma ke and con ibu e o
decline in inequali y (Engelb ech , 2003; Hend icks, 2002). P oponen s o he ins i u ional heo y also
emphasise he pa played by good go e nance and e ec i e ins i u ions in enhancing human capi al
accumula ion and equali y (Fa ia e al., 2016;O’Neill & Bagchi-Sen, 2023; Uddin e al., 2021).
2.2. Empi ical li e a u e on human capi al and income inequali y
A ple ho a o esea ch exis s on human capi al. Bu he majo i y o hem end o concen a e on he link
be ween economic g ow h and human capi al ep esen ed by ei he o al income, pe capi a income o
COGENT ECONOMICS & FINANCE 3
p oduc i i y (Okunade e al., 2022), wi h he hope ha high economic g ow h will gene a e bene icial
spillo e s o he poo in socie y (
Ska e & D u
ze a, 2016). This is, howe e , no synonymous wi h income
equali y o a decline in po e y. In ac , i has been well-documen ed ha high economic g ow h can
coexis wi h p onounced IE (Domho , 2012). In his sec ion, we p o ile p e ious s udies ha di ec ly
in e oga e he impac s o human capi al on IE. As a as e , we admi ha he e idence on how human
capi al a ec s IE is mixed, e lec ing he deba e on IE and human capi al is a om being se led.
Sa ides (1998) employed panel da a on 41 coun ies o analyse he in luence o human capi al and
ade openness on IE. Empi ical es ima es showed ha bo h a iables had a meaning ul ole in dec eas-
ing IE. Acemoglu and Dell (2010) main ained ha abou hal o he be ween-municipali y and be ween-
coun y income di e ences a e a ibu able o di e ences in human capi al, which was measu ed using
yea s o schooling and expe ience o he labou o ce. L
opez-Bazo and Mo ell
on (2012) ob ained a simi-
la ou come in hei analysis o egional wage gaps in Spain. Simila ly, Shahpa i and Da oudi (2014)as
well as Sheikh e al. (2016) ound ha human capi al educes IE. A signi ican and posi i e ela ionship
be ween schooling inequali y and IE was ound by Coady and Dizioli (2018) who ecommended o use
o educa ion expansion as a ool o make income dis ibu ion mo e equal. E idence also sugges s ha
declining schooling inequali y has in luenced he educ ion in IE in B azil (Lam e al., 2015).
D awing on da a om a panel o 95 economies, Lee and Lee (2018) ound ha educa ional expansion
will likely lead o imp o ed educa ional equali y and mo e equal income dis ibu ion. No only is educa-
ion a key de e minan o IE as obse ed by Yang and Qiu (2016), bu a ailable e idence e eals ha
widesp ead access o quali y educa ion educes IE by enhancing pa icipa ion in go e nance and labou
ma ke ac i i ies (Lindg en e al., 2019). Bu zynski e al. (2020) s udied he unde lying ac o s esponsible
o he global dis ibu ion o skills and how ha a ec ed IE. These au ho s de eloped and pa ame e ised
a wo-class, wo-sec o wo ld economy model ha endogenises mobili y decisions and educa ion as
well as income di e ences wi hin and ac oss coun ies. Resul s om a s a ic expe imen showed ha
sec o al misalloca ion o skills and low access o educa ion signi ican ly in luenced income in poo coun-
ies. Consequen ly, he au ho s concluded ha policies a ge ing access o educa ion a all le els will
ha e a long- e m e ec on inequali y and demog aphic g ow h. A gumen s aised by S einbe g (2017)
and Leame e al. (1999) ound ha esou ce endowmen inc eases IE by abso bing he low o capi al
o manu ac u ing and dep essing wo ke s’incen i e o accumula e skills. Un o una ely, hese s udies
did no es he pe o mance o human capi al in he p esence o con ounding a iables such as good
go e nance. Mo e ecen ly, Hossain (2022) add essed his lacuna by assessing he unc ion o good go -
e nance in os e ing human capi al o educe IE. Un o una ely, he au ho gauged human capi al wi h
li e expec ancy a bi h and adul li e acy a e as a pe cen age o he o al popula ion which may no be
a good measu e o human capi al compa ed o a di e si ied index ha cap u es addi ional a iables.
Ne e heless, o he wo ks ha e also obse ed a di ec posi i e link be ween human capi al and IE
(Checchi, 2004; Menezes Filho & Ki schbaum, 2019). The hi d g oup o s udies ei he ound no ela ion-
ship o a cu ilinea ela ionship conce ning IE and human capi al. Mo e ecen ly, Cas ell
o-Climen and
Dom
enech (2021) ound an in e ed U-shaped associa ion be ween human capi al inequali y and IE, bu
wi h subs an ial di e ences among coun ies conce ning he u ning poin s. The au ho s also obse ed
ha skill-biased echnological change has he po en ial o weaken he ela ionship be ween ea nings
inequali y and human capi al. They epo ed ha IE was di ec ly and posi i ely in luenced by human
capi al inequali y beyond ha o ea nings inequali y. Simila ly, using da a o a panel o coun ies,
F€
old
a i and Leeuwen (2010) analysed he associa ion be ween educa ion inequali y and IE and e ealed
ha he impac o educa ion inequali y on IE was insigni ican . Uddin e al. (2021) analysed how human
capi al and ins i u ions in luence economic g ow h in 120 de eloping economies and ound human cap-
i al and ins i u ions o ha e s a is ically signi ican and indi ec in e ac i e e ec s on economic g ow h in
he s udied coun ies. Al hough hese au ho s did no in es iga e how human capi al in luences IE di -
ec ly, he implica ions o hei indings o IE a e implici . In pa icula , hey a gued ha inc easing
human capi al de elopmen in es men s impac s economic g ow h and equali y nega i ely when ins i-
u ions a e weak and dys unc ional. And his is because addi ional in es men s end o be misalloca ed
h ough socially unp oduc i e ac i i ies and en -seeking. Un o una ely, his s udy did no es he
h eshold o ins i u ions a which human capi al ends o w eck o enhance IE. Finally, be ween human
capi al and IE, e idence o an in e ed U-shape ela ionship was ound by Lim and Tang (2008).
4 J. NUNOO ET AL.
2.3. The link be ween good go e nance and income inequali y
The e is an a ay o li e a u e on he e ec o good go e nance on income a ound he globe. E alua ing
he ole o go e nance in weal h inequali y among oil ich economies, o ins ance, Njangang e al.
(2022) obse ed ha while good go e nance educes weal h inequali y, hese e ec s a e el when
some app eciable le els o ule o law, egula ion quali y, co up ion con ols, and go e nmen e ec i e-
ness a e in place. Good go e nance has also been ecognised o ha e bo h an in insic alue and a posi-
i e e ec on de elopmen by ensu ing equali y in he dis ibu ion o weal h (Zhuang e al., 2010). In
pa icula , hese au ho s show ha go e nmen e ec i eness, ule o law, and egula o y quali y, as
measu es o good go e nance educe inequali y. Huang e al. (2018) ound simila esul s among de el-
oping and eme ging economies in Asia. They obse ed ha good go e nance has a educing e ec on
IE. Howe e , Huang and Ho opined ha among ad anced economies, he impac o good go e nance
on IE was insigni ican , e lec ing ha he media ion ole o good go e nance on IE canno be
uni e salised.
The ole o co up ion in IE has been widely in es iga ed. In assessing he e ec s o go e nance on
economic wel a e, Sha ique e al. (2006) showed ha imp o emen in public es ablishmen s’e iciency
and co up ion educ ion has he po en ial o imp o e income dis ibu ion h ough inc eased economic
g ow h. On he o he hand, Wong (2017) a gues ha he e ec s o co up ion on IE is mixed depending
on he sou ce o co up ion. He shows ha co up ion ha esul s in he sha ing o loo ed unds among
he populace educes inequali y while he ype ha leads o he concen a ion o loo ed unds in he
hands o he eli e end o widen IE. Ape gis e al. (2010) ound a posi i e long un ela ionship be ween
co up ion and inequali y, e lec ing ha inequali y ises wi h co up ion.
3. Me hodology
3.1. Da a
The empi ical analysis in his s udy used mac oeconomic da a o 36 A ican coun ies om 2010–2020.
The unde lying da ase is unbalanced, a ising om da a a ailabili y issues in many A ican coun ies.
Acco dingly, we gua d agains un eliable in e ence by d opping coun ies ha lack obse a ions o a
leas h ee yea s, leading o a sample o 36 A ican coun ies. We con end ha his sample is app op ia e
as i cap u es a mo e comp ehensi e pic u e o A ica’s di e se socioeconomic and ins i u ional expe ien-
ces. By using unbalanced da a, we ensu e ha insigh s om coun ies wi h jus o wo missing obse a-
ions a e no excluded, p o iding a mo e ealis ic analysis o he nuanced linkages be ween human
capi al, go e nance quali y and income inequali y.
Da a o he analysis we e ob ained om ee and open sou ces. The ou come a iable employed in
he analysis is he Palma a io, which is measu ed as he sha e o na ional income owned by he op 10
pe cen iches quin ile o a popula ion ela i e o he sha e o he poo es 40 pe cen . Ou a en ion on
his measu e ollows he a gumen in O o i e al. (2022) ha compa ed o o he IE indica o s, he Palma
a io bes cap u es bo h be ween-and wi hin-household IE. In assessing he obus ness o he es ima es,
we employ an al e na i e IE measu e, ha is he Gini (Table 4) as ou come a iable. We mine da ase s
on hese a iables om he S anda dized Wo ld Income Inequali y Da abase (Sol , 2020).
As he main a iable o in e es in his s udy, human capi al was cap u ed wi h e u ns o educa ion
and yea s o schooling (Feens a e al., 2015). The essence o human capi al o IE has been clea ly
a icula ed. Fo ou mode a o s, we pay a en ion o wo go e nance dynamics: (1) ins i u ional go e n-
ance (p oxied by con ol o co up ion) and, (2) economic go e nance, which as poin ed ou in he in o-
duc o y sec ion, can media e he human capi al-income inequali y ela ionship. In line wi h sound
econome ic p ocedu es o mul iple eg ession analysis, we keep abs on some con ol a iables o mi i-
ga e po en ial omi ed a iable bias and cap u e he implica ion o new economy, economic g ow h,
esou ce alloca ion and employmen o income dis ibu ion. Speci ically, we con ol o economic
g ow h, digi al in as uc u e, inancial de elopmen and ulne able employmen in he condi ioning
in o ma ion se . Fi s , ou a en ion on new economy is based on ecen e idence in he IE discou se
ha access o and usage o digi al in as uc u e a e e ec i e ools o dec easing he dispa i y be ween
he ich and he poo in access o in o ma ion, economic oppo uni ies and incomes (Adeleye e al.,
COGENT ECONOMICS & FINANCE 5
2021; O o i & Asongu, 2021). The da a o digi al in as uc u e is aken om he A ican In as uc u e
Knowledge P og am (A ican De elopmen Bank, 2018). Second, mind ul o he g owing schola ly a en-
ion on he implica ion o esou ce alloca ion o IE, we conside inancial de elopmen as a con ol a i-
able. The ele ance o inancial de elopmen is ancho ed in he inance-led hypo hesis ha access o
c edi can p opel p i a e sec o inno a ion, pe o mance, and job c ea ion (Adegboye & Iwe iebo , 2018;
S i ydzenka, 2016). Howe e , he e ec i eness o inancial de elopmen in he equalisa ion o incomes
in se ings like A ica has been ques ioned. The a gumen cen es on he conce n ha inancial pola isa-
ion, which is conspicuous in he u al-u ban di ide, can heigh en inequali ies in access o inance
(Jauch & Wa zka, 2016). Simila o S i ydzenka (2016), we d aw ou inancial de elopmen measu es
om he IMF’s Financial De elopmen Index.
Also, consis en wi h he Kuzne s’hypo hesis, we keep abs on economic g ow h. Howe e , he li e a-
u e sugges s ha coun ies in hei ea ly s ages o de elopmen , like hose we conside in his s udy,
ha e highe le els o IE (Fosu, 2018). None heless, in la e s ages o de elopmen , sound socioeconomic
policies can deli e a sha ed g ow h (Ali & Son, 2007; Anand e al., 2013). Las ly, we ake no e o ulne -
able employmen o cap u e he na u e o income g ow h and po e y alle ia ion on IE educ ion.
Al hough ulne able employmen can con ibu e o po e y alle ia ion a he indi idual le el, wide-
sp ead job p eca i y can widen he income dispa i y gap as such employmen a enues: (1) a ac low
wages, and (2) lack sa e y ne s ha p o ec wo ke s om socioeconomic shocks (Anand e al., 2013;
Webs e e al., 2017). Bo h economic g ow h and ulne able employmen a e aken om
Wo ld De elopmen Indica o s (Wo ld Bank, 2022). A ho ough explana ion o he a iables is gi en
in Table 1.
3.1.1. Es ima ion s a egy
Following he empi ical p ocedu e in O o i e al. (2022) and Be gh and Nilsson (2010), we begin ou
empi ical models’speci ica ion by i s in e oga ing how ou con ol a iables a ec s IE as seen in
Equa ion (1):
palmai ¼a0þa1palmai −1þd1digi i þd2 uli þd3 indepi þd4g owi þiþl þei (1)
Table 1. Desc ip ion o a iables and da a sou ces.
Va iables Symbol Desc ip ion Sou ce
Dependen a iables
Palma a io Palma The a io o he sha e o incomes held by he iches 10% o he
popula ion o ha o he poo es 40% o he popula ion.
SWIID
Gini index Gini The a e age income inequali y a e axes and ans e s (0 deno es
a case o pe ec equali y while 100 indica es a case o pe ec
inequali y).
SWIID
Main p edic o
Human capi al de elopmen Hci Index o yea s o schooling and e u ns o educa ion PWT
Con ol a iables
Economic g ow h G ow GDP pe capi a g ow h (annual) WDI
Vulne able employmen Vul Numbe o con ibu o y amily and own-accoun wo ke s (% o al
o o al employmen )
WDI
ICT in as uc u e index Ic Composi e index on he cons uc ion, ex ension, imp o emen ,
ope a ion, and main enance o communica ion sys ems (pos al,
elephone, eleg aph, wi eless, and sa elli e communica ion
sys ems).
AIKP
Financial access Findep C edi o p i a e sec o as a pe cen age o GDP WDI
Mode a ing a iable
Go e nmen e ec i eness Go e Cap u es pe cep ions o he quali y o public se ices, he ci il
se ice and he deg ee o hei independence om poli ical
p essu es, he quali y o policy o mula ion and implemen a ion,
and he c edibili y o he go e nmen ’s commi men o such
policies.
WGI
Con ol o co up ion Co up Cap u es pe cep ions o he public on he ex en o which public
powe is exe cised o p i a e gain, including bo h pe y and
g and o ms o co up ion, as well as ‘cap u e’o he s a e by
eli es and p i a e in e es s.
(es ima e)
WGI
No e. WDI:wo ld de elopmen indica o s; SWIID: s anda dized income inequali y da abase; PWT Penn Wo ld Tables; WGI: wo ld go e nmen
indica o s; and AIKP: A ica In as uc u e knowledge p og am.
6 J. NUNOO ET AL.
Tha said, we u n a en ion o he speci ica ion o a ull model consis en wi h Objec i es 1 and 2 o
his s udy and in oduce he condi ional and uncondi ional e ec s o human capi al. Acco dingly,
we modi y equa ion (1) as ollows:
palmai ¼a0þa1palmai −1þd1digi i þd2 uli þd3 indepi þd4g owi þb1hcii þb2go i þb3hcii go i
ðÞ
þiþl þei ,
(2)
whe e palma is Palma a io; iis coun y; is ime in yea s; digi digi al in as uc u e; de is inancial
de elopmen ; g ow is GDP pe capi a g ow h a e; and ul is ulne able o employmen . Also, we use
hci o signi y human capi al; go is an indica o o ou go e nance dynamics: co up ion con ol
(co up Þand go e nmen e ec i eness (go e Þ:Addi ionally, we use (hci go Þ o deno e he in e -
ac ion o human capi al and ou go e nance indica o s; ei is he idiosyc a ic e o e m; and iis he
coun y-speci ic e ec s.Mind ul o endogenei y conce ns, which could unde mine ou es ima es, we do
no es ima e Equa ions (1) and (2) ia he ixed e ec , pooled leas squa e, o andom e ec es ima o s.
In his s udy, endogenei y is appa en conside ing he possible e e se causali y be ween weak ins i u-
ional quali y and IE (see e.g., Acemoglu & Robinson, 2010; Kau mann e al., 2010). The jus i ica ion is
ha weak s uc u es and amewo ks o con ol and go e nmen e ec i eness can lead o skew eco-
nomic oppo uni ies o jus a ew connec ed eli e o a luen indi iduals, leading o high-income
inequali y. On he o he hand, a highe le el o income inequali y can also weaken ins i u ional quali y
as especially he eli e households use in o mal channels o acqui e se ices (e.g., access o elec ici y
and wa e ) in he sho es possible ime o access oppo uni ies. This can be a disad an age o ulne -
able households, u he widening he income dispa i y gap.
In ligh o hese conce ns, his s udy employs he ins umen al a iable gene alized me hod o
momen s (IV-GMM) eg ession pu o wa d by Baum e al. (2010). Compa ed o he i s -di e ence
GMM echnique o A ellano and Bo e (1995), he IV-GMM is supe io in yielding sound and obus
es ima es. This is because i has been shown o be eliable in he p esence o s ong pe sis ence.
Also, acco ding o Ahn and Schmid (1995), IV-GMM accoun s o he iable in o ma ion in he le el
ela ionship and in he ela ions be ween he le el and he i s di e ences. Mo e impo an ly,
he IV-GMM es ima o p oduces eliable and asymp o ically consis en es ima es a he han he i s -
di e ence gene alised me hod o momen s. Ano he ca ea o employing he wo-s ep sys em gen-
e alised me hod o momen s is ha he pe iod unde conside a ion (11 yea s) is less han he coun
o coun ies in his s udy (36).
Fu he , he Baum e al. (2010) IV-GMM echnique es ima es is lexible o execu e as allows one o
use lagged i s -di e enced independen a iables as ins umen s in he le el equa ion wi h he lagged
le el co a ia es as ins umen s in he i s -di e enced es ima ion. Mo eo e , we ecognise ha endoge-
nei y is no he econome ic conce n wi h da a analysis. Acco dingly, he s udy also employed he
D iscoll and K aay (1998) s anda d e o s es ima o o accoun o po en ial econome ic issues such as
he e oscedas ici y, c oss-sec ional dependence and se ial co ela ion, ensu ing ha ou indings a e
obus and app op ia e o in e ence.
Wi h all ha said, we p oceed by p esen ing Equa ions (3) and (4), which in espec i e e ms, encap-
sula e he le el and i s di e ence speci ica ion o he dynamic wo-sys em gene alised me hod o
momen s es ima ion.
palmai ¼a0þa1palmai −1þb1hcii þb2go i þX4
1d4Vki −sþIiþl þei (3)
palmai −palmai −s¼a1palmai −s−palmai −2s
ðÞ
þb1hcii −hcii −s
ðÞ
þb2go i −go i −s
ðÞ
þX4
1d4ðVki −sþVki −2sÞþðl −li −sÞþðei −ei −sÞ(4)
Then, o accoun o he mode a ing ole o go e nance in he human capi al-income inequali y ela-
ionship, we modi y Equa ion (4) o ge Equa ion (5):
palmai −palmai −s¼a1palmai −s−palmai −2s
ðÞ
þb1hcii −hcii −s
ðÞ
þb2go i −go i −s
ðÞ
þb3hcii go i −hcii −sgo i −s
ðÞ
þX4
1d4ðVki −sþVki −2sÞþðl −li −sÞþðei −ei −sÞ(5)
COGENT ECONOMICS & FINANCE 7
Table 4. E ec o human capi al de elopmen on income inequali y (Dependen a iable: Gini index).
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Va iables DCK DCK DCK DCK DCK DCK IV-GMM IV-GMM IV-GMM IV-GMM
Human capi al −1.0489 0.9303 4.4755 5.5027 5.6544 5.7169 5.2552 5.6142 7.0036 7.2476
(0.2805) (0.1341) (0.4411) (0.2358) (0.3218) (0.2973) (1.1936) (1.3137) (1.5624) (2.1883)
ICT di usion −0.1475 −0.0712 −0.1531 −0.1637 −0.1673 −0.2165 −0.2247 −0.2069 −0.2289
(0.0196) (0.0134) (0.0455) (0.0447) (0.0479) (0.0797) (0.0818) (0.0798) (0.0816)
Vulne able employmen 0.1167 0.1827 0.1842 0.1864 0.2043 0.1817 0.2102 0.1844
(0.0032) (0.0085) (0.0103) (0.0090) (0.0408) (0.0412) (0.0406) (0.0411)
Financial access 0.0961 0.1003 0.1017 0.1041 0.1178 0.0968 0.1084
(0.0186) (0.0207) (0.0228) (0.0359) (0.0389) (0.0357) (0.0392)
GDP pe capi a −0.1812 −0.2204−0.4097 −0.2847 −0.3799 −0.2702
(0.0760) (0.1128) (0.0959) (0.1008) (0.0934) (0.0970)
GDP pe capi a g ow h −0.0039 −0.0083 −0.0060 −0.0083 −0.0064
(0.0050) (0.0035) (0.0039) (0.0035) (0.0038)
Co up ion con ol 3.8816 −3.2830
(0.6981) (3.5751)
Go e nmen e ec i eness 0.4619 −4.7422
(1.0926) (4.9823)
Human capi al x
Co up ion con ol
3.5333
(1.6790)
Human capi al x
Go e nmen e ec i eness
2.6080
(2.4907)
To al e ec s na na na na na na na na 5.0882*** 5.6076***
na na na na na na na na (1.1875) (1.3070)
Cons an 57.1696 55.0356 40.2374 32.4284 32.3474 32.2330 35.1125 33.5255 30.8679 29.9891
(0.5229) (0.3982) (0.8786) (1.0986) (1.3218) (1.2749) (5.0055) (5.4894) (5.8228) (6.9049)
Obse a ions 350 340 340 313 313 313 280 280 280 280
R-squa ed 0.0039 0.0332 0.0824 0.1481 0.1563 0.1576 0.2155 0.1705 0.2308 0.1796
Coun ies 35 34 34 33 33 33 36 36 36 36
Wald/Fishe S a is ic 13.98 29.50 749.9 1717 5491 3343 9.179 6.034 9.434 5.320
Unde iden i ica ion S a s na na na na na na 92.75 113.5 59.35 73.45
Weak Iden i ica ion S a s na na na na na na 1298 909.4 85.03 83.36
C aig-Donald Wald S a s na na na na na na 1497 905.2 65.06 85.26
Hansen J na Na na na na na 6.204 3.539 5.692 3.449
Hansen p- alue na Na na na na na 0.184 0.472 0.223 0.486
No e. S anda d e o s in pa en heses; p<0.01, p<0.05, p<0.1.
14 J. NUNOO ET AL.
5. Conclusion and policy ecommenda ions
The s udy p o ides esh e idence on he human capi al-income inequali y ela ionship in he con ex
o A ica by in es iga ing whe he in he p esence o go e nmen e ec i eness and co up ion con ol,
human capi al de elopmen p omo es ai e income dis ibu ion. To his end, we employ mac oeco-
nomic da a om a panel o 36 A ican coun ies om 2010–2020 o he analysis. The a endan ind-
ings a e con incing and a e based on a dynamic GMM es ima o . The i s inding is ha human
capi al de elopmen deepens income inequali y in A ica. Second, we demons a e ha wo ins i u-
ional quali y a iables namely, go e nmen e ec i eness and co up ion con ol, mi iga e he posi i e
impac o human capi al de elopmen on income inequali y in A ica. Based on hese indings, he
s udy concludes ha while human capi al de elopmen signi ican ly inc eases income inequali y, ins i-
u ional amewo ks and s uc u es o go e nmen e ec i eness and co up ion con ol mi iga e he
impac .
Based on hese indings, he ollowing policy ecommenda ions a e p oposed. Fi s , he e idence calls
o he need o scale up in es men s in quali y educa ion and heal hca e in A ica. Thus, A ican leade s
should in es hea ily in quali y educa ion and heal hca e, which a e c ucial o p omo ing he p oduc i e
capaci y o he wo king popula ion and na iga ing he con inen owa ds sha ed p ospe i y. This, we
eckon, can be enhanced i ins i u ions such as he Wo ld Heal h O ganiza ion, he Uni ed Na ions
Child en Fund, he A ican Union Commission, and he Bill & Melinda Ga es Founda ion p o ide ech-
nical, inancial, and logis ical suppo ha ensu es widesp ead access o quali y educa ion among he
popula ions. Pa icula ly, heal hca e access can be imp o ed by implemen ing sys ems like Ghana’s
Heal h Insu ance Scheme and Kenya’s Na ional Hospi al Insu ance Fund, which subsidises heal hca e bu -
den o ulne able/low-income households. Second, he IE educing e ec s o go e nmen e ec i eness
calls o he need o imp o e upon economic go e nance in A ica. To his end, p uden social and iscal
dis ibu ion could help b eed economic eedom and suppo he masses in accessing socioeconomic
oppo uni ies. The IE-inducing e ec o A ica’s ins i u ional; o co up ion con ol highligh s he ele-
ance o ein o cing essen ial amewo ks and sys ems ha sa egua d public unds and ensu e ha
esou ces in ended o p omo e social inclusi i y and p o ec ion coun s o all. To his end, we ecom-
mend ha in e na ional o ganiza ions, such as he A ican Union and he Wo ld Bank, o e echnical
suppo , unding, and capaci y-building p og ams o cushion A ican go e nmen s implemen e ec i e
an i-co up ion s a egies.
Finally, conce ning u u e con ibu ions, we ecommend ha o he esea che s ailo hei con ibu-
ions o he speci ic g ow h condi ions and policy needs o coun ies o in e es . Also, examining he IE
impac s o o he human capi al d i e s such as gene al go e nmen expendi u e and heal hca e spend-
ing could be an in e es ing empi ical exe cise.
Au ho s’con ibu ions
1. Jacob Nunoo: Concep ualisa ion, Analysis, Li e a u e, Edi ing, Supe ision.
2. F ancis Taale: Concep ualisa ion, Me hodology, Li e a u e, Edi ing, Supe ision.
3. Adams So ekuong Yakubu Adama: Edi ing, Concep ualisa ion, Me hodology.
4. Isaac K. O o i: Concep ualisa ion, Analysis, Da a cu a ion, Me hodology, W i ing, So wa e, Visualisa ion, Re iew
and Edi ing.
5. Pe e Yel ulme Mwinlaa u: Edi ing, Li e a u e e iew.
All au ho s ha e ead and app o ed he inal e sion o he manusc ip .
Disclosu e S a emen
No po en ial con lic o in e es was epo ed by he au ho (s).
Funding
No unding was ecei ed.
COGENT ECONOMICS & FINANCE 15
Abou he au ho s
Jacob Nunoo is a senio lec u e wi h he Depa men o Applied Economics o he Uni e si y o Cape Coas . He
holds a PhD in Economics. His esea ch in e es s a e in de elopmen and labou economics as well as economics o
educa ion wi h special ocus on human capi al de elopmen . He also e iews o some epu able e e eed jou nals.
F ancis Taale is a senio lec u e wi h he Depa men o Economic S udies o he Uni e si y o Cape Coas . He holds
a PhD in Economics. He conduc s esea ch in en i onmen , ene gy, ou ism, and de elopmen economics.
Isaac K. O o i is a esea ch ellow o he School o Business, Na ional Uni e si y o I eland Maynoo h. He has skills in
da a science, econome ics and machine lea ning o add ess social p og ess issues. He leads esea ch e o s aimed
a acking he p og ess o coun ies/ e i o ies in Inclusi e G een G ow h. He ob ained his PhD in Economics om
he Uni e si y o Insub ia, I aly.
Pe e Yel ulme Mwinlaa u is a PhD s uden o he Depa men o Economic S udies, Uni e si y o Cape Coas . He is
a da a scien is wi h he Ghana S a is ical Se ice.
Adams Yakubu So ekuong Adama is a lec u e and a mac oeconomis wi h he Depa men o Economic S udies o
he Uni e si y o Cape Coas . His esea ch in e es includes small i m inancing and g ow h, ins i u ional quali y and
de elopmen especially in eme ging economies whe e such ins i u ions a e weak and agile, mac oeconomic policy
issues and dynamic s ochas ic gene al equilib ium (DSGE) modelling.
Da a a ailabili y s a emen
The da a suppo ing he indings o his s udy a e om open-sou ced da abases and a e a ailable upon eques .
Re e ences
Acemoglu, D., & Dell, M. (2010). P oduc i i y di e ences be ween and wi hin coun ies. Ame ican Economic Jou nal:
Mac oeconomics,2(1), 169–188. h ps://doi.o g/10.1257/mac.2.1.169
Acemoglu, D., & Robinson, J. A. (2010). Why is A ica poo ? Economic His o y o De eloping Regions,25(1), 21–50.
h ps://doi.o g/10.1080/20780389.2010.505010
Adegboye, A. C., & Iwe iebo , S. (2018). Does access o inance enhance SME inno a ion and p oduc i i y in Nige ia?
E idence om he Wo ld Bank En e p ise Su ey. A ican De elopmen Re iew,30(4), 449–461. h ps://doi.o g/10.
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