AFRICAN JOURNAL OF ECONOMICS AND FINANCIAL ISSUES

This paper provides empirical evidence on the impact of trade openness on inequality and the transmission channels through which these two variables interact, using a panel of 30 African countries from 2000 to 2020. The use of dynamic panel estimation techniques ensures methodological rigor and leads to several significant insights. First, inequality exhibits structural inertia in Africa, where historical shocks persistently affect income distribution through unequal access to physical and human capital. Second, trade openness has a non-linear effect: its impact depends on institutional capacity to redistribute trade gains toward sectors generating social spillover effects. Third, institutional instability creates a substitution effect, requiring proactive regulation to offset the negative externalities of openness. Fourth, the inverted U-shaped relationship between GDP and inequality confirms that growth initially benefits skilled urban sectors during economic diversification, while human capital plays an inequality-reducing role. Finally, climatic variables reveal a paradox: abundant rainfall exacerbates inequality, as hydraulic infrastructure enables certain regions to disproportionately capture benefits at the expense of small-scale farmers. These findings underscore the need for adaptive trade policies coupled with institutional investments and human capital development to reduce inequality in Africa.

Keywords: trade openness, income inequality, foreign direct investment, human capital accumulation, climate change vulnerability, institutional quality, Africa
JEL Classification: F14, F21, F63, I25, O15, Q54