TRADE OPENNESS AND INCOME INEQUALITY: A CASE OF SOUTHERN AFRICAN DEVELOPMENT COMMUNITY COUNTRIES†

Abstract

This research aims to address one of the SADC regional indicative strategic plans (RISDP) and one of the 17 Sustainable Development Goals (SDG) objectives of reducing inequality in the face of increased trade openness. The paper uses the pooled mean group (PMG) estimation technique to examine the effect of trade openness on income inequality in 16 SADC countries from 1980 to 2019. The findings of the study reveal that trade openness worsens income inequality in the long run. Again, the findings of the results indicate that it is not only trading that matters on income inequality changes. Thus, trade openness reduces income inequality when economic growth, human capital index, and financial development are high. Yet, the mediating variable of trade openness and institutional quality has a positive and significant effect on income inequality in SADC countries. As a result, this study provides SADC policymakers and governments with some recommendations, such as investing more in high-quality education and strengthening financial institutions by reducing inequalities in the financial sector. Furthermore, effective policies to stimulate local production are needed to create jobs and improve the quality of institutions to reduce income inequality in the SADC region.