Effects of remittances and democracy on income inequality in Sub-Saharan Africa.

Abstract

Income inequality remains persistently high in Sub-Saharan Africa, despite substantial remittance inflows and the widespread adoption of democratic governance. Therefore, this study Seek to investigate the effect of remittances and democracy on income inequality in Sub-Saharan Africa (SSA), using panel data from 35 countries covering the years 2000 to 2022. Employing the Two-Step System GMM estimator and the Driscoll-Kraay method, the research addresses endogeneity and cross-sectional dependence. The analysis focuses on the individual and combined effects of remittances and democracy on income distribution, using the Palma index as the primary inequality measure, with Gini, Theil, and Atkinson indices as robustness checks. The findings reveal that remittances significantly reduce income inequality, and that their effect is amplified in countries with stronger democratic institutions. Political rights and civil liberties are found to be associated with more equitable income distribution. The study further shows that while GDP per capita is linked to lower income inequality, industrialization and education tend to widen the income gap. The conclusion emphasizes that the income inequality-reducing potential of remittances depends on the quality of democratic governance. It recommends policies that promote financial inclusion, institutional reform, and regional coordination to maximize the developmental impact of remittance flows.