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Working Paper 246 - Why is inequality high in Africa?
Available evidence suggests that Africa is the second most unequal continent in the world next to Latin America (e.g. Ravallion and Chen, 2012). High inequality also seems to have persisted overtime with no visible sign of declining (Bigsten, 2014; Milanovic, 2003). Paucity of data at the household level in repeated waves for many countries prevented any systematic analysis on the underlying determinants of inequality in Africa. Previous attempts based on cross-country panel data indicate ethnic fractionalization as a robust determinant of income inequality in Africa (Milanovic, 2003). While there may be enough justifiable political economy reasons for ethnically fragmented countries to experience high inequality, it is also possible that the ethnicity variable may be picking up other unobserved factors relevant for policy. In addition, the main challenge researchers commonly face while working on inequality data for African countries is its quality and availability in reasonably sufficient waves. Household income and consumption surveys, the source of most income inequality data are collected infrequently and in irregular time intervals in many cases making contemporaneous comparisons difficult (Deverajan, 2012).