Dynamics of income inequality in Sub-Saharan Africa: the role of foreign direct investment and expenditure on education

Addressing income inequality in Sub-Saharan Africa (SSA) requires a comprehensive approach that tackles the region's underlying structural challenges, including limited access to quality education and the need for inclusive economic growth. Education and foreign direct investment (FDI) are critical drivers of economic mobility that can help break the cycle of intergenerational poverty in developing regions, enhance the quality of education mitigate skill mismatches in the labour market, supported by increased public spending on education and foreign investment inflows to reduce unemployment. Our study investigates the dynamic relationship between government education spending and FDI, and their impact on income inequality in 36 Sub-Saharan African countries from 1995 to 2021. The results reveal that while FDI significantly reduces income inequality, government spending on education tends to increase it. Furthermore, basic education enrolment exacerbates income disparities in the region, though a growing labour share mitigates inequality. Findings suggest the need for policies that encourage FDI inflows and educational initiatives that aim to enhance skills and expand the educated workforce.