Middle class in Africa: Determinants and Consequences

Kodila-Tedika, Oasis and Asongu, Simplice A (2014): Middle class in Africa: Determinants and Consequences.

Abstract

This study complements the inclusive growth literature by examining the determinants and consequences of the middle class in a continent where economic growth has been relatively high. The empirical evidence is based on a sample of 33 African countries for a 2010 cross-sectional study. OLS, 2SLS, 3SLS and SUR estimation techniques are employed to regress a plethora of middle class indicators, notably, the: floating, middle-class with floating, middle-class without floating, lower-middle-income and upper-middle-income categories. Results can be classified into two main strands. First, results on determinants broadly show that GDP per capita and education positively affect all middle class dependent variables. However, we have seen a negative nexus for the effect of ethnic fragmentation, political stability in general and partially for economic vulnerability. Simple positive correlations have been observed for: the size of the informal sector, openness and democracy. Second, on the consequences, the middle class enables the accumulation of human and infrastructural capital, while its effect is null on political stability and democracy in the short-run but positive for governance and modernisation. Policy implications are discussed.

• Item Type: MPRA Paper
• Language: English
• Keywords: Poverty; Inequality; Middle class; Africa
• Subjects: D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I32 - Measurement and Analysis of Poverty; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

References

Adams, R. H., (2004). “Economic growth, inequality and poverty: Estimating the growth elasticity poverty”, World Development, 32(12), pp. 1989-2014.

ADB (2010), Key Indicators for Asia and the Pacific 2010, The Rise of Asia ’s Middle Class

Adelman, I. and C. T. Morris. 1967. Society, Politics, and Economic Development : A Quantitative Approach. Baltimore : Johns Hopkins University Press, Baltimore.

Agbor, Julius A., (2011). How Does Colonial Origin Matter for Economic Performance in Sub-Saharan Africa. World Institute for Development Economics Research, Working Paper, No. 2011/27.

Alesina, A., A. Devleeschauwer, W. Easterly, S. Kurlat and R. Wacziarg2003. ‘Fractionalization’, Journal of Economic Growth, 8, pp. 155–94.

Ali, A. A., & Thorbecke , E., (2000). “The State and Path of Poverty in Sub Saharan Africa: Some Preliminary Result”, Journal of African Economies, 29(Suppl. 1), pp. 9-40.

Asongu, S. A., (2012a). “Law and finance in Africa”, Brussels Economic Review, 55, (4), pp. 385-408.

Asongu, S. A., (2012b). “On the effect of foreign aid on corruption”, Economics Bulletin, 32(3), pp. 2174-2180.

Asongu, S. A., (2014a). “Sino-African relations: a review and reconciliation of dominant schools of thought”, African Governance and Development Institute Working Paper.

Asongu, S. A., (2014b). “Globalization (fighting) corruption and development: how are these phenomena linearly and nonlinearly related in wealth effects”, Journal of Economic Studies, 41(3), pp. 346-369.

Asongu, S. A., (2014c). “Reinventing foreign aid for inclusive and sustainable development: Kuznets, Piketty and the great policy reversal”, African Governance and Development Institute Working Paper.

Asongu, S. A., & Aminkeng, G. A. A., (2014). “China’s Strategies in Economic Diplomacy: Updated Lessons for Africa, the West and China”, African Governance and Development Institute Working Paper.

Bagnara, A., (2012). “Aid Effectiveness: Effective Aid is Good Foreign Policy”, Partners in Research for Development, (Summer Issue), pp. 4-6.

Banerjee, A and E. Dufflo 2008. What is Middle Class about, the Middle Classes Around the World?.Journal of Economic Perspectives, 22(2), 3-28.

Barro, R. 1999. Determinants of Democracy. Journal of Political Economy 107:6:S158–83.

Barro, R.J. and Lee, J.-W., 2010. A new data set of educational attainment in the world. 1950-2010. NBER Working Paper 15902.

Bhagwati, J., (1958). “Immiserizing growth: A geometrical note”, Review of Economic Studies, 25, pp. 201-205.

Bhalla, S. 2009.The Middle Class Kingdoms of India and China. Peterson Institute for International Economics, Washington, DC.

Birdsall, B. 2007. Do No Harm: Aid, Weak Institutions and the Missing Middle in Africa, Development Policy Review, 25(5), pages 575-598, 09.

Birdsall, N. 2007. Reflections on the Macro Foundations of the Middle Class in the Developing World, Center for Global, International and Regional Studies, Working Paper Series qt4nt1n232, UC Santa Cruz.

Birdsall, N., Graham, C. and Pettinato. S. 2000. Stuck in The Tunnel: Is Globalization Muddling The Middle Class?, Brookings Institution, Center on Social and Economic Dynamics WP No. 14.

Bledstein, B J. 1976. The Culture of Professionalism: The Middle Class and the Development of Higher Education in America. 1st ed. New York: Norton.

Bloom, D. E. and Sachs. J. 1998. Geography, Demography, and Economic Growth in Africa”, Brookings Papers on Economic Activity:2.

Cariolle, J. and Goujon, M. 2013. A retrospective economic vulnerability index 1990-2011 - Using the 2012 UN-CDP definitions. Ferdi, Document de travail I17.

Cheibub, J., Gandhi, J. and Vreeland, J.R. 2010. Democracy and dictatorship previsited. Public Choice 143(1-2), 67-101.

Chun, N., Hasan, R. and Ulubasoglu, M. 2011. The Role of the Middle Class in Economic Development: What Do Cross-Country Data Show?, ADB Economics Working Paper Series.No. 245.

Cogneau, D. 2003. Colonisation, School and Development in Africa. An empirical analysis, WorkingPapers, DIAL (Dévéloppement, Institutions et Mondialisation) DT/2003/01, DIAL (Développement, Institutions et Mondialisation).

Cogneau, D. 2012. The Political Dimension Of Inequality During Economic Development, Region et Developpement, 35, pages 11-36.

Cogneau, D. and Moradi, A. 2013. Borders that Divide: Education and Religion in Ghana and Togo since Colonial Times, African Economic History Working Paper, African Economic History Network 4/2012, African Economic History Network.

Daniele, V. 2013.Does the intelligence of populations determine the wealth of nations? The Journal of Socio-Economics46, 27– 37.

Datt, G., & Ravallion, M., (1992). “Growth and Redistribution Component of Changes in Poverty Decomposition to Brazil and India in the 1980s”, Journal of Development Economics, 38 (2), pp. 275-295.

Devarajan, S.; Ehrhart, H.; Tuan Minh Le and Raballand, G. 2011. Direct Redistribution, Taxation, and Accountability in Oil-Rich Economies: A Proposal, CGD Working Paper, Washington DC: CGD.

Doepke, M., and F. Zilibotti. 2008. Occupational Choice and the Spirit of Capitalism. The Quarterly Journal of Economics, 747- 793

Dollar, D.andKraay, A. 2004. Trade, Growth, and Poverty, Economic Journal, 114(493), pages F22-F49, 02.

Easterly, W. 2001. The Middle Class Consensus and Economic Development. Journal of Economic Growth, 6(4), 317–35.

Easterly, W., (2000). The Effect of IMF and World Bank Programs in Poverty, Washington DC: World Bank, Mimeo.

Elu J., (2013). “Earnings Inequality and the Intersectionality of Gender and Ethnicity In Sub-Saharan Africa: The Case of Tanzanian Manufacturing”, American Economic Review, Papers and Proceedings 04/2013, 103(103), pp. 289-292.

Fosu, A. K., (2014). “Growth, Inequality and Poverty in Sub-Saharan Africa: Recent Progress in a Global Context”, CSAE Working Paper Series 2014-17.

Fosu, A. K., (2008). “Inequality and the Growth-Poverty Nexus: Specification Empirics Using African Data”, Applied Economics Letters, 15(7), pp. 563-566.

Fosu, A. K., (2009). “Inequality and the Impact of Growth on Poverty: Comparative Evidence for Sub-Saharan Africa”, Journal of Development Studies, 45(5), pp. 726-745.

Fosu, A. K., (2010a). “Inequality, Income and Poverty: Comparative Global Evidence”, Social Sciences Quarterly, 91(5), pp. 1432-1446.

Fosu, A. K., (2010b). “The Effect of Income Distribution on the Ability of Growth to Reduce Poverty: Evidence from Rural and Urban African Economies”, American Journal of Economics and Sociology, 69(3), pp. 1034-1053.

Fosu, A. K., (2010c). “Does Inequality Constrain Poverty Reduction Programs? Evidence from Africa”, Journal of Policy Modeling, 32(6), pp. 818-827.

Fosu, A. K., (2011). “Growth, Inequality and Poverty Reduction in Developing Countries: Recent Global Evidence”, UNU WIDER Working Paper 2011/01.

Frankel, J.A. 2012. The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions, HKS Faculty Research Working Paper Series RWP12-014, John F. Kennedy School of Government, Harvard University.

Guillaumont, P. 2008. An Economic Vulnerability Index : Its design and Use for International Development Policy. ResearchPaper No. 2008/99, UNU WIDER.

Huillery, E. 2009. History Matters: The Long-Term Impact of Colonial Public Investments in French West Africa, American Economic Journal: Applied Economics, 1(2), 176-215.

Jacquemot, P, 2012. Les classes moyennes changent-elles la donne en Afrique ? Réalités, enjeux et perspectives, Afrique contemporaine, 4 n°244, p. 17-31. DOI : 10.3917/afco.244.0017

Johnson, S., D. Kaufmann and P. Zoido-Lobaton 1998. Regulatorydiscretion and the unofficialeconomy, The American EconomicReview 88, 387- 392.

Kakwani, N., (1993). “Poverty and Economic Growth with Application to Côte d’Ivoire”, Review of Income and Wealth, 39(2) pp. 121-139.

Kalwij, A., & Verschoor, A., (2007). “Not by Growth Alone: The Role of the Distribution of Income in Regional Diversity in Poverty Reduction”, European Economic Review, 51(4), pp. 805-829.

Kenny, C. 2012. Where is the Virtue in the Middle Class? Center for Global Development Essay. Washington DC: CGD. Kharas, H. 2010. The Emerging Middle Class in Developing Countries. OECD Development Center Working Paper 285. Washington DC: Brookings Institution.

Kodila-Tedika and Cinyabuguma, M. 2014. HIV/AIDS, Intelligence and Human Capital : Exploration New, mimeo.

Kodila-Tedika, O. And Tcheta-Bampa, A. 2014. Cold War and Institutional Quality: Some Empirical Evidence, MPRA Paper 53965, University Library of Munich, Germany.

Kohut, A 2009. The Global Middle Class: Views on Democracy, Religion, Values and Life Satisfaction in Emerging Nations. Global Pew Attitudes Survey. Washington DC: Pew Research Center.

Kongsamut, P., Rebelo, S. and Xie, D. 1997. Beyond Balanced Growth, NBER Working Paper No. 6159.

Kuznets, S. (1955). “Economic Growth and Income Inequality”. American Economic Review , 45, pp. 1–28.

Kuznets, S., (1971). Economic Growth of Nations: Total Output and Production Structure. Belknap Press/Harvard University Press: Cambridge (Mass).

Landes, D. 1998. The Wealth and Poverty of Nations. Norton (New York, NY).

Lalountas, D.A., Manolas, G.A., & Vavouras, I.S., (2011), “Corruption, globalization and development: How are these three phenomena related?”, Journal of Policy Modeling, 33, pp.636-648.

La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. W. Vishny 1999. The Quality of Government. Journal of Law, Economics, and Organization, 15, pp. 222–79.

La Porta, R., F. Lopez-de-Silanes., A. Shleifer, and R. Vishny. 1998. Law and Finance. Journal of Political Economy 106(6):1113–55.

Landes, D. 1998. The Wealth and Poverty of Nations. New York: Norton.

Lewis, A., (1955). Theory of Economic Growth. Milton Park: Routledge.

López-Calva, L. F. and Ortiz-Juarez, E. 2011. A Vulnerability Approach to the Definition of the Middle Class. Mimeograph. Washington DC & New York: The World Bank & UNDP.

Lynn, R., 2012. IQs predict differences in the technological development of nations from 1000 BC through 2000 AD. Intelligence 40 (5), 439–444.

Miller, D. C., (2014). “Explaining Global Patterns of International Aid of Linked Biodiversity Conservation and Development”, World Development, 59, pp. 341-359.

Mlachila, M., Tapsoba, R., & Tapsoba, S. J. A., (2014). “A Quality of Growth Index for Developing Countries: A Proposal”, IMF Working Paper No. 14/172.

Monika, A., & Bobbin, T., (2012). “The Billion Dollar Solution that Isnt: How systems modeling in foreign aid could save billions and serve the poor”, Development, 55(1), pp. 71-80.

Moyo, D., (2013). “Is China a new idol for developing countries”, TED Talks, New Ideas Every day, https://www.youtube.com/watch?v=4Q2aznfmcYU (Accessed: 07/05/2014).

Mthuli, N., Anyanwu, J. C., & Hausken, K., (2014). “Inequality, Economic Growth and Poverty in the Middle East and North Africa (MENA)”, African Development Review, 26(3), pp. 435-453.

Murphy, K., A. Shleifer, and R. Vishny. 1989. Income Distribution, Market Size, and Industrialization. The Quarterly Journal of Economics 104(3):537–64.

Ncube, M., Lufumpa, C. L., and Kayizzi-Mugerwa, S. 2011. The Middle of the Pyramid: Dynamics of the Middle Class in Africa, BAD Market Brief.

Ncube, Mthuli & Shimeles, Abebe, 2013. "The Making of Middle Class in Africa: Evidence from DHS Data," IZA Discussion Papers 7352, Institute for the Study of Labor (IZA).

North, D., Wallis, J. et Weingast 2010.Violence et ordres sociaux, Ed. Gallimard, Paris.

Ozgur, K., Ilker, K., & Lewell, G., (2013). “Foreign Aid and the Quest for Poverty Reduction: Is Aid to Agriculture Effective?”, Journal of Agricultural Economics, 64(3), pp. 583-596.

Palma, J. G. 2011. Homogeneous Middles vs. Heterogeneous Tails, and the End of the ‘Inverted-U’: It's All About the Share of the Rich. Development and Change, 42(1), 87-153.

Piketty, T., (2014). “Capital in the Twenty First Century”, Harvard University Press.

Pinkivskiy, M., & Sala-i-Martin, X., (2014). “Africa is on time”, Journal of Economic Growth, 19(3), pp. 311-333.

Ravallion, M. 2009. The Developing World's Bulging (but Vulnerable) “middle class”, World Bank Policy Research Working Paper 4816. Washington DC: World Bank.

Ravallion, M. 2009. Why Don’t We See Poverty Convergence? World Bank Policy Research Paper No. 4974, Washington, DC.

Rossi, M. and Borraz, F. and Gonzalez, N. 2011.Polarization and the Middle Class. AvailableatSSRN: http://ssrn.com/abstract=2158437 or http://dx.doi.org/10.2139/ssrn.2158437.

Ravallion, M., (1997). “Can High Inequality Developing Countries Escape Absolute Poverty”, Economics Letters, 56(1), pp. 51-57.

Sachs, J. and Warner, A. 1995. Natural resource abundance and economic growth, NBER Working Paper 5398.

Sachs, J. and Warner, A. 1997, Fundamental sources of long-run growth, American Economic Review Papers and Proceedings, 87(2), 184-188.

Schneider, F., A. Buehn and C.E. Montenegro2010. Shadow economies all over the world: new estimates for 162 countries from 1999 to 2007, Policy Research Working Paper Series 5356, The World Bank.

Senauer, B. and Goetz, B. 2003. The Growing Middle Class in Developing Countries and the Market for High-Value Food Products. Workshop on Global Markets for High-Value Food. Economic Research Service Working Paper 03-02.Washington DC: USDA

Severino, J.-M., Ray, O. 2010.Le Temps de l’Afrique, Paris, Odile Jacob.

Shleifer, A., Lopez-de-Silanes, F.andLa Porta, R., 2008. The Economic Consequences of Legal Origins, Journal of Economic Literature, 46(2), pages 285-332, June.

Singh, P., (2014, September). “Austerity, Welfare State and Eco-Socialism: With Special reference to the United Kingdom”, Economic and Political Weekly, XLIX(39), pp. 111-118.

Thorbecke, E., (2013). “The Interrelationship Linking Growth, Inequality and Poverty in Sub-Saharan Africa”, Journal of African Economies, 33, Suppl_1, pp. 15-48.

Thurow, L. C. 1984. The Disappearance of the Middle Class. New York Times. 5 February 5. Page F3.

Timmons, R. J., Bradleyc, P., Tierney, M., & Hicks, R., (2009). “Has Foreign Aid Been Greened?”, Environment: Science and Policy for Sustainable Development, 51(1), pp. 8-21.

van der Ploeg, F. 2011. Natural Resources: Curse or Blessing?,Journal of Economic Literature 49(2): 366-420.

Wheary, J. 2009. The Global Middle Class is Here: Now What? World Policy Journal 26, 75–83.

Young, A., (2012). “The African growth miracle”, Journal of Political Economy, 120 (4), pp. 696-739.

Yuan, Z., Wan, G. and Khor, N.2011. The Rise of the Middle Class in the People’s Republic of China, ADB Economics Working Paper Series No. 247.