The Relationship Between Financial Development, Institutions Quality, and Income Inequality from the Sub-Saharan Africa Countries

This study examines the hypothesis that financial development (FD) not only affects income inequality (II), but the effects can also be improved when there is a higher institutional quality (IQ). It uses the System GMM method on a panel of 48 Sub-Saharan African (SSA) countries during the 1980–2018 period. When banking sector development indicators and institutions are used separately as independent variables, the reported coefficients are negative and significant. The findings indicate that (FD) decreases (II). However, institutional variables seem to provoke (II) and to deepen the gap between the poor and the rich. Estimating the interaction variables, our findings conclude that poor IQ may contribute to the increasing inequality by shifting the gains of (FD) to the hands of the rich. Policy implications are discussed.