An Investigation of Sectoral Growth’s Impact on Income Inequality in Africa

There are limited studies on the sectoral growth-inequality nexus, especially in the context of Africa. The few existing studies also focus on the main economic sectors (agriculture, industry and services). More detailed sub-categories have rarely been analysed. Given the heterogeneity within these sectors, the sub-sectoral analysis could add valuable insights into the sources of inequality. This article contributes to filling this gap by examining the relationship between sectoral and sub-sectoral growth and inequality in African countries. To this end, we employ the fixed-effects (FE) and fixed effects instrumental variables (FE-IV) estimation techniques based on balanced panel data for 21 African countries over the period 1990–2018. The results show significant sectoral and sub-sectoral differences regarding the impact of economic growth on income inequality. Indeed, growth in the agriculture and industry sectors reduces income inequality, while the services sector increases income inequality. The sub-sectoral analyses indicate that manufacturing and construction industry sub-sectors reduce income inequality. In contrast, the mining sector exacerbates inequality, while the utilities sub-sector has statistically no impact on inequality. Also, the growth of the trade and transport services sub-sectors has an inequality-reducing effect, while the growth of the real estate, finance and business services sub-sectors deepens income inequality. These findings justify the necessity for considering heterogeneity within the economic sectors in policy formulation to promote inclusive growth in Africa.