Income Inequality and Economic Growth in Kenya_2010

The global income distribution highlights the extraordinarily high degree of inequality. The average income of the top 20% of the world’s population is about 50 times the average income of the bottom 20% (HDR 2005). Kenya’s top 10% households control 42% of the total income while the bottom 10% controls less than 1% (SID, 2004). Kenya’s long term development goal as indicated in its Vision 2030 is to transform the country into a middle income country with a sustainable economic growth rate of 10 percent. The effect of income inequality and growth remains unclear; scholars are yet to reach a consensus. It thus becomes essential to bring to light the nature of relationship between income inequality and economic growth in Kenya, hence the motivation of the study. Regression analysis using secondary data on GDP and GINI coefficient of the country reveal a weak negative relationship between income inequality and growth. Poor social phenomena such as shorter life expectancy, higher disease rates, homicide, infant mortality which correlate with socioeconomic inequality, are a disincentive to economic growth. Inequalities in income can also reflect inequalities in political power. A more equitable distribution of income can stimulate healthy economic expansion by acting as a powerful material and psychological incentive to widespread public participation in the development process (Todaro, 1992). The study recommends that government to take broader steps towards income redistribution to reduce inequality for inclusive growth.