Income Inequality in Ethiopia: Do Macroeconomic Factors Matter?

This study identifies factors driving income inequality in Ethiopia from 1991 to 2022 using secondary data and an autoregressive distributed lag (ARDL) model. Long-run results show that education and foreign direct investment significantly reduce inequality. Conversely, inflation, real interest rates, trade openness, and population growth exacerbate it. Short-run findings indicate that government expenditure and trade openness negatively impact inequality, while unemployment and inflation have positive effects. Notably, inflation positively correlates with inequality in both periods by eroding real wages. The study recommends that the National Bank of Ethiopia pursue stable macroeconomic policies to curb inflation and that the government enhances access to education to boost productivity and reduce income disparities.