The relationship between income inequality, economic growth and poverty in South Africa
Since gaining political liberation, the South African government has developed growth-focused policies, with the aim of reducing income inequality and poverty alleviation. However, given all that has been achieved, South Africa still remains one of the highest in the world in terms of income inequality. The Inequality is demonstrated through a two-tiered educational failing system; lack of access to natural resources; a dual health system; and other socio-economic dimensions. This increasing income inequality is an issue of concern to social scientists and policy makers. The purpose of this study is to analyse the relationship between income inequality, economic growth and poverty in South Africa, which also serves as the primary objective of the study. Focusing on what has been achieved but identifying the gaps that remain, causality, as well as the short and long-run relationship between the aforementioned variables. In addition, policy options, consequences and recommendations are suggested. This study employed quantitative research to analyse the relations between the variables. Making use of secondary data from IHS Global insight 2018 database for the years ranging from 1997 to 2017. Data included economic growth (GDP), income inequality (GINIco), poverty (PVT) and the human development index (HDI) as a control variable. The statistical tests and econometric models used to analyse the data included trend analysis, descriptive statistics, a correlation (multicollinearity) test first and second generation unit root tests. The panel mean group (MG) model, based on the panel Autoregressive Distributed Lag (ARDL) approach, was employed to test the cointegration among variables, and the error correction model (ECM) was used to determine the adjustment of the system to the equilibrium. Due to the presence of cross-sectional dependency, the common corrected effects model (CCEMG) was employed as an advanced technique of the MG estimator. The findings of the study revealed that in the long-run, GDP growth and poverty have a negative relationship whilst income inequality and economic growth have a positive relationship. Furthermore, the human development index has a positive relationship with income inequality and a negative relationship with poverty in the long-run. These results are an indication that since income inequality has a positive effect on growth, by implementing inequality- focused strategies/policies, in the long-run there will be economic growth which in turn impacts poverty alleviation. Literature has indicated that actions on reducing income inequality can be highly complementary to poverty reduction thus improving the standard of living of South Africans.