Economic growth and income inequality: a non-linear econometrics analysis of the SADC region, 1990–2015

What is it about?

Abstract Purpose -We investigate the growth-inequality relationship, using panel data from 13 SADC countries over the period 1990-2015, to test the validity of the Kuznets and Tribble theories. Furthermore, we seek to determine the threshold level at which excessive growth hampers inequality. Design/methodology/approach -The PSTR model has several stages. We applied the LM test to find the appropriate transition variable among all candidate variables, to assess the linearity between economic-growth and income-inequality and to find the sequence for selecting the order m of the transition function. We then estimated the PSTR model, but before facilitating the results we first used the WCB-LM-type test to assess the appropriateness of the selected transition. Findings - We found that, at lower growth, income-inequality tends to be lower, while if growth increases above US$8969, inequality tends to increase in the SADC region. The findings combine into a U-shaped relationship, contradicting the Kuznets and Tribble theories. Originality - The contribution of this paper is that it becomes the first to provide the threshold level at which excessive growth increases inequality in the selected countries. This study proposes that policy-makers should focus on activities aimed at stimulating growth, in other words activities such as spending more on infrastructure, drawing up a suitable investment portfolio, and spending on technological investment for countries that are below US$8969. An improvement in these activities will create job opportunities, which in turn will add to economic-growth and thus lead to lower income-inequality and better social-cohesion.

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