Economic Transformation and Income Inequality in Africa

The main objective of this book is to demonstrate that a minimum level of economic transformation is required for such transformation to lead to a reduction in income inequality in African economies. Using the PSTR (Panel Smooth Transmission Regression) model applied to a non-cylindrical panel of 19 African countries over the period from 1960 to 2012, the book shows that economic transformation will only begin to reduce income inequality if it reaches a minimum level of 10.8%. Below this level, any 1% increase in economic transformation will lead to a 1.3892% rise in inequality, whereas above this level of economic transformation, income inequality will decrease by 0.8183% for every 1% increase in economic transformation. To reduce income inequality and lay the groundwork for inclusive, sustainable, and equitable growth, African economies must accelerate the process of transforming their economies to reach or even exceed this optimal level of economic transformation.