The Nexus between Financial Development and Income Inequality: The Moderating Role of Religious Freedom

The study investigates whether religious freedom affects the relationship between financial development and income inequality in sub-Saharan Africa, employing empirical analysis. It is motivated by the observation that, although religious freedom can reduce income inequality, rapid and high financial development can disrupt the financial sector's information flow and resource allocation. The study employs panel data analysis and a causal, quantitative research approach to achieve its research goals, focusing on 39 sub-Saharan African nations between 2000 and 2020. Based on the availability of data, this time frame was selected. Using the instrumental variable estimation method, the study reveals a significant positive correlation between financial development and income inequality, while religious freedom has a negative influence on income inequality. However, religious liberty is a conduit through which financial development influences income inequality. This finding highlights the pressing need for reforms to address income inequality in sub-Saharan Africa and establish a robust financial system. The study emphasises that the benefits of financial sector growth should be more evenly distributed, particularly in environments with underdeveloped institutional frameworks. While financial freedom tends to reinforce existing wealth structures, religion must do more to counteract its income-widening effect.