Financial development, economic growth and income inequality in sub-Saharan Africa: the case of the countries of the franc zone Africa
- Country : Republic of the Congo
- Subject : Economic Sciences
Keywords : financial development, economic growth, income inequality.
Abstract
This article examines the impact of financial development on economic growth and income inequality in Franc Zone African countries between 2006 and 2019. Using a panel ARDL model, the results indicate that financial development has a significant negative effect on long-term economic growth, with no significant short-term impact according to the PMG estimator. Variables such as official development assistance, gross domestic savings, and foreign direct investment are significant and positive in the DFE and PMG estimates, but not in the MG model, suggesting a limited influence of the financial sector on growth.
Furthermore, financial development helps reduce income inequality between Franc Zone African countries and Côte d’Ivoire, with effects varying by region. In WAEMU, financial development reduces income disparities in the long term, but it may also hinder economic growth, widening the GDP per capita gap with Côte d’Ivoire. In CEMAC, financial development has an insignificant impact, although foreign direct investment reduces inequalities in the short term. Domestic savings and remittances also play a role in reducing inequalities: domestic savings have a positive short-term effect across all regions, and remittances narrow disparities in the short term in WAEMU.
Therefore, this article suggests that public policies should encourage domestic savings and channel migrant remittances towards productive investments to address inequalities. This approach would stimulate capital accumulation in the region and indirectly help reduce other forms of social inequality.
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