The effect of finance on inequality in Sub-Saharan Africa: avoidable CO2 emissions thresholds

Abstract

here is a glaring concern of income inequality in the light of the post-2015 global development agenda of Sustainable Development Goals (SDGs), especially for countries that are in the south of the Sahara. There are also concerns over the present and future consequences of ecological degradation on development outcomes in Sub-Saharan Africa (SSA). This study provides carbon dioxide (CO2) emissions thresholds that should be avoided in the nexus between financial development and income inequality in a panel of 39 countries in SSA over the period 2004–2014. Quantile regressions are used as an empirical strategy. The following findings are established. Financial development unconditionally decreases income inequality with an increasing negative magnitude, while the interactions between financial development and CO2 emissions have the opposite effect with an increasing positive magnitude. The underlying nexuses are significant exclusively in the median and top quantiles of the income inequality distribution. CO2 emission thresholds that should not be exceeded for financial development to reduce income inequality continuously are 0.222, 0.200, and 0.166 (metric tons per capita) for the median, the 75th quantile, and the 90th quantile of the income inequality distribution, respectively. Policy implications are discussed with particular relevance to Sustainable Development Goals (SDGs).