Income inequality and economic growth: An empirical investigation in South Africa

Abstract

This study examines the relationship between income inequality and economic growth in South Africa for the period 1989 to 2018. The study is motivated by the high disparity in income inequality and stagnant economic growth that South Africa is experiencing. Using the autoregressive distributed lag (ARDL) bounds testing technique, we established a long-run relationship between economic growth and income inequality. The results revealed that income inequality has a negative impact on economic growth in the long run, and no effect in the short run. These results are robust with an estimation of the ARDL procedure that considers structural breaks. Therefore, policymakers should employ strategies that entail a double effect of growth in national income and consider the distribution of income in the long run. These policies include human capital accumulation, easily accessible education, and reduction in labour market dualism.

Keywords:

• Income inequality
• economic growth
• ARDL bounds test
• South Africa

Subject:

• C22
• D63
• O15

PUBLIC INTEREST STATEMENT

South Africa has been ranked highest among the unequal countries globally; it has the highest Gini coefficient compared with other countries. Over the past few decades, it has experienced sluggish economic growth. Motivated by the high disparity in income inequality and stagnant economic growth, we investigate the relationship between income inequality and economic growth in South Africa from 1989-2018. Our findings show that income inequality has a negative impact on economic growth in the long run, but no impact in the short run. Therefore, policymakers should employ strategies that entail a double effect of growth in national income and consider the distribution of income in the long run. These policies include human capital accumulation, easily accessible education, and reduction in labour market dualism.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Apartheid is a system that discriminated against the population based on race. In South Africa it was introduced in 1948 by the National Party, where the government implemented policies and laws that forced different race groups to live and develop separately, with unequal opportunities in education and employment (South African History Online (SAHO), 1994).

Additional information

Funding

There was no funding for this research.

Notes on contributors

Kholeka Mdingi

Kholeka Mdingi is a lecturer at the Department of Economics, University of South Africa. She has an interest in the research field of development economics.

Sin-Yu Ho

Sin-Yu Ho is an associate professor in the Department of Economics, University of South Africa. Her research focuses on topics relating to development finance, financial economics, development economics and international economics in emerging markets and developing countries.