Effect of political instability on income inequality within the West African Economic and Monetary Union

Worldwide, income inequality and political conflict remain persistent problems. This article analyses the specific role of financial inclusion in the relationship between political instability and income inequality in West African Economic and Monetary Union (WAEMU) countries. The econometric analysis is based on panel data from 2003 to 2022. The results obtained using Seo’s non-linear estimation method show that political instability leads to an increase in income inequality when financial inclusion is low. However, an increase in financial inclusion to a level of 17.5 per cent or more reduces income inequality. In terms of economic policy implications, reducing income inequality requires WAEMU members to undertake stringent reforms that discourage government instability. Strengthening financial institutions, in particular, expanding credit to the private sector beyond 17.5 per cent, could help mitigate the effects of political instability on income inequality. Financial inclusion could enable the emergence of businesses that will employ more people, which is likely to reduce political instability and, in turn, income inequality.