Extreme poverty, economic growth and income inequality trilogy in sub-Saharan Africa and South Asia: A GMM panel VAR approach

Abstract

Abstract This study allows the assessment the triangular relationship between extreme poverty, economic growth and income inequality in South Asia and sub-Saharan Africa. Unlike previous studies in the poverty-inequality-growth literature, this study employed the panel vector autoregressive model to examine the impact of income inequality and economic growth on extreme poverty. Moreover, we used the impulse response function tool, which was developed in the same context, to better understand the reaction of the two main variables of interest, extreme poverty and economic growth, aftershocks on income inequality variable. Finally, the analysis was completed by the variance decomposition of all variables. These analyses were conducted for a 56 South Asian and sub-Saharan African countries from 1990 to 2020. Overall, the results show that income inequality has a positive and significant impact and can strongly explain economic growth. Meanwhile, the results indicate a negative and significant relationship between economic growth and extreme poverty. Our empirical result reveals that there is no relationship between income inequality and extreme poverty. JEL Classification codes : I32, F43, D3, C33, O55, O53