Analysing the effects of capital flows on income inequality in Africa: Does institutional quality matter?

Analysing the effects of capital flows on income inequality in Africa: Does institutional quality matter? | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Analysing the effects of capital flows on income inequality in Africa: Does institutional quality matter? Bosede Victoria Kudaisi, Titus Ayobami Ojeyinka, Elisha Mutize, and 1 more This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8689264/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract African countries are usually associated with poverty and rising income disparities. Foreign capital flows have been identified as potent sources of finance to stimulate economic growth and employment and alleviate poverty and inequality. However, their effects on economic outcomes such as income inequality are relatively underexplored in Africa. Therefore, this study examines whether capital flows (remittances, foreign direct investment, and foreign aid) and domestic institutional settings enhance income distribution using data from 32 African countries from 1996 to 2022. The study controls for the influence of cross-sectional dependence and the distributional effect of flows on inequality using second-generation estimation techniques. Findings from robust econometric approaches support the worsening effect of foreign capital inflows on income inequality in Africa. The findings are consistent across different estimators and models. However, further evidence from the study shows that institutional quality plays a strong moderating role in the connection between capital flows and income inequality in Africa. Specifically, better and stronger institutions mitigate the aggravating effect of external finance on income disparities in the continent. The outcome is consistent and robust across all the dimensions of institutional architecture. This implies that the quality of institutions matters in optimising the economic impact of foreign capital flows on income inequality. The study highlights some recommendations for African countries to achieve SDG 10 goals for reducing income inequality through the lens of capital inflows and a strong institutional environment. Gini index Institutional quality FDI remittances ODA Africa Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-8689264","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":594300673,"identity":"17b6c0a9-11c2-4570-b801-e0717443f56a","order_by":0,"name":"Bosede Victoria Kudaisi","email":"","orcid":"","institution":"Adekunle Ajasin University","correspondingAuthor":false,"prefix":"","firstName":"Bosede","middleName":"Victoria","lastName":"Kudaisi","suffix":""},{"id":594300674,"identity":"7a7c00c6-8dfe-4526-83fa-7b9e897c9617","order_by":1,"name":"Titus Ayobami Ojeyinka","email":"","orcid":"","institution":"Obafemi Awolowo University","correspondingAuthor":false,"prefix":"","firstName":"Titus","middleName":"Ayobami","lastName":"Ojeyinka","suffix":""},{"id":594300675,"identity":"f47a133d-9861-4bbd-9752-a34b1fc14a1e","order_by":2,"name":"Elisha Mutize","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAAxUlEQVRIiWNgGAWjYLCCBAYGOZI0MDYAtRiTqAVIJDYQrZ5f7Iz5gwd/bNI3nD9jwPCjhsGen5Bmydk5hg0JPGm5G27kGDD2HGNgljhAQIvBbZAWicO5227wGDDwNjCwMRDSYg/WYvA/3QzoMMa/DQw88gRtkQZpSTiQYHYgx4AZaIuEASEtErfTCmckHEg23H8jreCwzDEJA0NCWvhnJ2/4+OOPnbxk/+GND9/U2NjLEdKCAoCKJUhRPwpGwSgYBaMAFwAAGTw+h6moR/gAAAAASUVORK5CYII=","orcid":"","institution":"Walter Sisulu University","correspondingAuthor":true,"prefix":"","firstName":"Elisha","middleName":"","lastName":"Mutize","suffix":""},{"id":594300676,"identity":"56902697-bbf3-47fc-ab00-b120a4ac9015","order_by":3,"name":"Enathi Qanga","email":"","orcid":"","institution":"Walter Sisulu University","correspondingAuthor":false,"prefix":"","firstName":"Enathi","middleName":"","lastName":"Qanga","suffix":""}],"badges":[],"createdAt":"2026-01-24 22:23:29","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-8689264/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-8689264/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":103506397,"identity":"e32ab06f-1760-4855-bf07-ff6135c139c0","added_by":"auto","created_at":"2026-02-26 13:36:02","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":575128,"visible":true,"origin":"","legend":"","description":"","filename":"annonymousmanuscriptQQ.pdf","url":"https://assets-eu.researchsquare.com/files/rs-8689264/v1_covered_db0d103f-a201-46ee-a8ae-8499b43b0c7c.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Analysing the effects of capital flows on income inequality in Africa: Does institutional quality matter?","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Gini index, Institutional quality, FDI, remittances, ODA, Africa","lastPublishedDoi":"10.21203/rs.3.rs-8689264/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-8689264/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eAfrican countries are usually associated with poverty and rising income disparities. 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