Financial access, governance and the persistence of inequality in Africa: Mechanisms and policy instruments

• Published date: 01 May 2021
• Author: Vanessa S. Tchamyou
• Date: 01 May 2021
• DOI: http://doi.org/10.1002/pa.2201

ACADEMIC PAPER

Financial access, governance and the persistence of inequality

in Africa: Mechanisms and policy instruments

Vanessa S. Tchamyou

Department of Economics, Faculty of Business

and Management, University of Antwerp,

Antwerp, Belgium

Correspondence

Vanessa S. Tchamyou, Department of

Economics, Faculty of Business and

Management, University of Antwerp,

Stadscampus, Prinsstraat13, 2000 Antwerp,

Belgium.

Email: simenvanessa@yahoo.com

The aim of this paper is to investigate policy instruments by which the persistence of

inequality is affected by financial development channels in 48 African countries for

the period of 1996–2014. Financial dynamic channels of depth, efficiency, activity

and stability are used. Political, economic and institutional governance policy instru-

ments are also involved. The empirical evidence is based on the generalised method

of moments. The results show that financial depth and financial stability are the best

channels of reducing inequality. Moreover, the relevance of these financial channels

is significantly apparent when policy instruments are exclusively governance vari-

ables. The comparative relevance of governance dynamics in the persistence of

inequality is discussed. The study responds to two recent policy and scholarly chal-

lenges, notably: the persistence of inequality in Africa and the relevance of gover-

nance in addressing income inequality by means of financial access.

JEL CLASSIFICATION

O16; O10; I30; C50; O55

1|INTRODUCTION

The motivation of this study builds on three major trends in academic

and policy circles, specifically: (a) the persistence of inequality in the

world and particularly in Africa; (b) the potential effect of good gover-

nance in mitigating inequality; (c) challenges of access to financial ser-

vices in Africa and (d) gaps in the literature. These points are further

engaged chronologically.

First, inequality can be seen as a sign of lack of mobility and

income opportunities—reflecting a persistent disadvantage for a

certain proportion of the society (Dabla-Norris, Kochhar,

Suphaphiphat, Ricka, & Tsounta, 2015). The 2017 Oxfam report on

“An Economy for the 99%”has revealed that the gap between the

poor and the rich is far greater than what one could have thought.

In essence, findings from the report show that: the super-rich and

big businesses are fuelling the inequality crisis by influencing poli-

tics with their power, lowering workers' wages and producer prices

and avoiding taxes. The report has released that the eight richest

persons in the world possess as much wealth as the 3.6 billion peo-

ple who constitute the poorest half of humanity. Oxfam further

shows in its analysis that “inequality of opportunity”is persistent

over time because more than half of the world's billionaires have

either inherited their wealth or accumulated it through industries

(that are prone to cronyism and corruption).

The persistence of inequality in Africa is very alarming because

the continent is host to seven of the 10 most unequal countries in the

world (World Bank, 2016). Accordingly, Africa is second after Latin

America in terms of high inequality in the world (Klasen, 2016). More-

over, the challenge of poverty in Africa is well known, with about a

third of the world's poor living in the continent. Accordingly, high

levels of inequality and poverty persist in Africa despite being one of

the most dynamic regions of the last decade (Asongu & le Roux, 2018;

United Nations Development Programme, 2016).

Second, governance was the main theme of the 2017 African

Economic Conference held at the United Nations Economic Commis-

sion for Africa, in Addis Ababa, Ethiopia. The theme of the conference

was “Governance for Structural Transformation.”The conclusion of the

conference was unanimous for policymakers, private sector leaders

and civil societies who urged governments of African countries to

strive for good governance as a top priority for development

programmes in the continent. Hence, this study is timely because it

investigates whether governance has a significant impact when com-

plementing financial access to reduce the persistence of high-income

inequality in Africa.

Received: 17 October 2019 Accepted: 21 May 2020

DOI: 10.1002/pa.2201

J Public Affairs. 2021;21:e2201. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of15

https://doi.org/10.1002/pa.2201