Persistence of Inequality after Apartheid: Assessing the Role of Geography and Skills

Abstract:

South Africa remains one of the most unequal countries in the world, despite the formal end of Apartheid in 1994. This paper develops and quantifies a model with spatially segregated residential, educational, and labor markets to examine the persistence of inequality in Aouth Africa. We explore the role that Apartheid-era policies of racial segregation, particularly the establishment of “Townships” for non-White urban populations, have played in sustaining high levels of inequality. Our model incorporates heterogeneous agents, incomplete markets, and endogenous choices regarding savings, education, and occupation in a dynastic overlapping generations framework. Using household-level data spanning both the Apartheid and post-Apartheid periods, we establish key empirical facts about the persistence of inequality and calibrate the model accordingly. The model provides insights into the mechanisms by which geography and segregated educational  and labor opportunities contribute to long-term inequality. We then assess the extent to which these standard economic forces account for the observed patterns of inequality and explore counterfactual scenarios to evaluate policy interventions.