Investigating the causality between economic growth, trade and income inequality in SADC (1985-2020).

Southern Africa remains one of the most unequal regions in Africa. This is despite maintaining real positive growth rates and an impressive trade liberalisation believed to have desirable impact on the standard of living and the redistribution of income within and among trading nations. Conversely, empirical literature on the nexus between economic growth, trade openness and income inequality remain open to public debate at global, regional as well as country level. This study investigates the causal relationship between economic growth, trade openness and income inequality in 11 SADC countries from 1985-2020. Data was obtained from World Development Indicators (WDI), Standard World Income Inequality Database (SWIID), International Monetary Fund (IMF) and the World Bank (WB). A multivariate analysis was adopted using Panel Autoregressive Distributive Lags (ARDL) and the Pooled Mean Group (PMG) model. Dumitrescue and Hurlin causality tests were also conducted. Cointegration was detected which revealed the existence of a long run relationship among the variables. Additionally, the estimated results indicate that in the long run, economic growth and trade openness worsens income distribution in SADC. Causality tests also reveal a unidirectional causality running from economic growth to income inequality and from trade openness to income inequality and not vice versa. The implications of the above findings are that SADC needs to focus on a more inclusive and higher growth than the current growth rates and develop appropriate trade policies which are specific to the circumstances of the region. Fiscal policy reforms with increased expenditure on education will also help reduce income disparities in the long run.