The dynamic interplay of foreign direct investment and education expenditure on Sub-Saharan Africa income inequality

Zaiyang Li, Hassan Swedy Lunku (), Shaohua Yang () and Agus Salim ()
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Zaiyang Li: Xi’an Jiaotong University
Hassan Swedy Lunku: Xi’an Jiaotong University
Shaohua Yang: Xi’an Jiaotong University
Agus Salim: Universitas Ahmad Dahlan

International Economics and Economic Policy, 2024, vol. 21, issue 3, No 3, 593-616

Abstract: Abstract In Sub-Saharan Africa (SSA), income inequality persists as a multifaceted challenge influenced by various structural factors, including limited access to quality education, inclusive economic growth, rural development, good governance, and political stability. Education and foreign investments in the host country play a strong major role as a mobility factor that moves the population from intergenerational poverty in developing countries. Quality education attainment improves skill-biased labor market and unemployment through increases in public expenditure in neweducation and foreign investment flows. This study examined the interplay between education expenditure, foreign direct investment (FDI), and income inequality in a selected sample of 36 SSA countries from 1995 to 2021. We employ the bias-corrected method of moment (BCMM) estimator for dynamic panel data models. The findings revealed that foreign investment significantly reduces income inequality in the region. On the other hand, government expenditure on education is associated with an increase in income inequality. Moreover, enrollment in basic education impairs income disparity in the SSA region, whereas an increase in the labor share reduces inequality. Based on the results, we recommend policy that attracts more foreign investment and prioritizing education policies that enhance skills and increase the share of educated labor in the region. By adopting these measures, SSA countries can effectively mitigate income inequality and promote sustainable economic development.

Keywords: Education expenditure; Foreign investment; Income inequality; Bootstrap-corrected fixed effect; H52; H61; F18 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10368-024-00614-y

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