Analysis of macroeconomic determinants and the persistence of income inequality in Africa

Despite increased efforts to reduce income inequality in African countries, the issue remains significant. Therefore, this study uses proxies of macroeconomic indicators, including foreign direct investment (FDI), real per capita GDP, human capital development (HCAPD), and trade openness, to examine their impact on income inequality (GINI coefficient). To investigate this, balanced panel data from 38 African countries, collected from the World Development Indicator (WDI) between 2005 and 2024, were analyzed. The Driscoll-Kraay and Generalized Method of Moments (GMM) approaches were used to assess the effect of macroeconomic indicators on income inequality. The findings indicate a proportional increase in both macroeconomic indicators and income inequality across the selected countries. These results challenge the effectiveness of current efforts to reduce income inequality in Africa. Moreover, the Driscoll-Kraay analysis reveals that foreign direct investment, real per capita GDP, and human capital development have limited effects on reducing income inequality. The results suggest that macroeconomic factors play a limited role in explaining income inequality; therefore, to mitigate rising income inequality, robust and effective macroeconomic policies—such as targeted FDI policies, increasing real per capita income to eradicate poverty, and enhancing human capital development—must be prioritized.