FINANCIAL DEVELOPMENT AND INCOME INEQUALITY IN SUB-SAHARAN AFRICAN COUNTRIES

The objective of this study is to analyze the effect of financial development on income inequality in sub-Saharan Africa. Unlike previous work on African countries, we adopt a non-linear approach using the Panel Smooth Transition (PSTR) model. Our panel is composed of 17 sub-Saharan African countries with a period ranging from 1980 to 2018. Data were extracted from various sources. The results suggest an inverted U-shaped relationship between financial development and income inequality. Facilitating access to credit could enable historically marginalized segments of the population to participate fully in the economy. The non-linear inverted-U effect shows that increasing financial development can lead to greater equality. Furthermore, the significant effects of urbanization, economic growth and inflation on income inequality show that financial development measures need to be supported by good urban planning, sustained economic growth and inflation control.