Human capital and income inequality in Africa: robust governance synergies and thresholds

Jacob Nunoo, Francis Taale, Isaac K. Ofori, Peter Yeltulme Mwinlaaru and Adams Yakubu Sorekuong Adama

Cogent Economics & Finance, 2024, vol. 12, issue 1, 2417757

Abstract: It has been widely documented that good governance reduces income inequality when it creates a conducive environment for quality human capital development. This study investigates the unconditional effects of human capital on income inequality and explores whether institutional quality mechanisms for corruption control and government effectiveness moderate the relationship. Results from the instrumental variable generalised method of moments estimator and data for an unbalanced panel data of 36 African over the period 2010-2020, shows that human capital increases income inequality. However, robust evidence from the interactive analysis reveals that corruption control and government effectiveness mitigate the income inequality-enhancing effect of human capital. This study underscores the need to improve structures and system government effectiveness and corruption control for human capital development to equalise income in Africa.This study provides valuable insights into the relationship between human capital development and income inequality in Africa, challenging the conventional belief that human capital alone reduces inequality. Using an instrumental variable generalized method of moments estimator and data from 35 African countries over the period 2010-2020, the research finds that human capital, on its own, tends to exacerbate income inequality. However, the study also reveals that effective governance mechanisms, particularly corruption control and government effectiveness, can mitigate this adverse effect. By highlighting the crucial role of institutional quality in moderating the relationship between human capital and inequality, this research offers actionable recommendations for policymakers. The findings underscore the importance of strengthening governance structures to ensure that investments in human capital contribute to more equitable income distribution across Africa. This study significantly advances the discourse on governance, inequality, and human capital development in the context of African economies.

Date: 2024
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DOI: 10.1080/23322039.2024.2417757

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