Digitalisation, governance, and income inequality in African countries

Abstract

In African countries, income inequality is a prevalent challenge, with far-reaching consequences for economic growth, social stability, and overall development. Studies have documented that digitalisation and quality of governance in African countries are influencing factors of income inequality. Thus, this study empirically examines the moderating role of governance in the digitalisation-income inequality nexus in Africa from 2006 to 2022. The study uses a variety of econometric techniques, including the Driscoll-Kraay {DK} method, the Fully Modified OLS technique, the Method of Moments Quantile Regression, and a two-step Dynamic System Generalised Method of Moments approach. The study finds that, on average, digitalisation narrows income inequality in Africa, while governance, on the other hand, widens the income gap. Also, the analysis shows that governance—including voice and accountability, government effectiveness, the rule of law, the quality of regulations, and overall governance—has a significant positive moderating effect on income disparity. This suggests that although digitalisation can lessen income inequality, its potential is diminished in Africa by poor governance. However, according to the DK method, the marginal impact of digitalisation on income inequality remains negative. These findings suggest that policymakers in Africa should prioritise enhancing the development of digital infrastructure and bolstering the quality of governance.