The Impact Of Institutional Quality On Income Inequality Comparative Economic Analysis Of Ethiopia And Uganda

Income inequality is currently a global issue since the gap between the rich and poor people within countries has been rising and it is one of the causes for polarizing societies as well as affects social cohesion among the society in a country. While there are various causes for the observed income inequality globally, there is still an acceptable suggestion that rising income inequality can be controlled by improving the quality of existing institutions. The main purpose of this paper is to explore the impact of institutional quality on income inequality in the case of Ethiopia and Uganda. The study uses time series annual data from 1991 to 2019, and an effort is made to identify the short run and long run impacts of institutional quality on income inequality in Ethiopia applying an Autoregressive Distributed Lag (ARDL) and Error Correction Methods (ECM). The findings of the study revealed that voice and accountability and rule of law are affecting income inequality in the long run for Ethiopia, while rule of law and political stability and absence of violence/terrorism has negative effect for Uganda in the long run. The coefficient of the ECM is found with the appropriate sign and magnitude. In general, the findings of the study highlighted that institutional quality has a vital role for income inequality reduction through the instrument on income redistribution from the richest to the poorest segment in both countries.

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