Income Inequality and Economic Complexity in Africa: The Moderating Role of Governance Quality
Résumé
Abstract This study examines the effect of economic complexity on income inequality through the moderating role of governance factors. It is based on data obtained from 24 African countries from 2000 to 2018 and has employed systems GMM panel method of estimation. The findings show that economic complexity (without interaction term) has a significant positive effect on income inequality. However, the coefficient of the interaction term is negative and significant implying that the adverse (positive) effect of economic complexity on inequality is significantly offset by the inclusion of governance factors. The estimated results for disaggregated governance factors also indicate similar findings to that of the aggregate indicator. All governance indicators reduce income inequality when interacting with economic complexity. The overall result entails important policy implications in that improving governance quality will help reduce the deteriorating effect of economic complexity on income inequality. This calls for taking measures to improve the performance of governance factors to at least reduce the deteriorating effect of economic complexity on income inequality.
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