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Economic Inclusion and Inequality
This research program examines the conditions under which public and private sector investments — in value chains, infrastructure, and more — can become genuine levers for reducing inequality and improving living conditions for the most vulnerable populations.
The main challenge
Inequality is not only a matter of social justice: it weakens economies, slows growth, and threatens the stability of financial systems. This finding, now firmly established, has a direct implication for development actors: the impact of funded projects will remain limited as long as high levels of inequality persist.
Our approach
This program builds on a solid body of research developed over several years on the various dimensions of inequality and their implications. From inequality of income and opportunity to vulnerability and poverty, including social mobility, these studies have helped understand societal dynamics, the role of public policies, and interactions with other challenges such as climate change. The current program extends this foundational work by taking a more operational approach: under what conditions can investments, whether public or private, become effective levers for reducing inequality?
The program is structured around three main areas of research:
- Fiscal, trade, social, and regulatory policies: For public authorities, what pre-distribution and redistribution levers can promote a more equitable distribution of wealth?
- Infrastructure: How can the location, design, and governance of infrastructure improve access to essential services, create economic opportunities, and strengthen the resilience of territories? Conversely, in what cases do they deepen territorial divides?
- Industrial and productive dynamics: Under what conditions do industrialization and the emergence of new sectors help create jobs, support productive upgrading, and ultimately enable more territories to take part in value creation?
By drawing on a range of experiences, the program helps structure dialogue between governments on inequality reduction strategies; it also helps inform policy formulation and the design of international cooperation instruments aimed at strengthening economic inclusion and the sustainability of investments.
Why is this a priority area for AFD?
This research program concretely supports AFD Group's ambition to finance projects whose benefits are equitably shared and that create opportunities for everyone. From project design through to evaluation, it provides tools and analyses to help ensure that each investment effectively contributes to reducing inequality.
Our tools
AFD relies on specific tools and methods to better analyze inequality and respond to it more effectively through public policy recommendations and development strategies:
The multidimensional inequality diagnostic is a tool developed by AFD and the African Centre of Excellence for Inequality Research (ACEIR). Using available data, it makes it possible to report on the different dimensions of inequality in a country in order to inform policymakers of priorities for reducing inequality. AFD has supported the implementation of this tool in South Africa, in Ghana, in Kenya, in Colombia and Indonesia.
To make it possible to compare studies and facilitate the preparation of diagnostics, a handbook was developed by ACEIR. Its 2025 updated version includes a new chapter on inequalities related to climate change and environmental factors.
Fiscal incidence analysis is a tool developed by the Commitment to Equity (CEQ) Institute to analyze the impact of taxation and social spending on inequality and poverty. It enables governments to identify the most effective fiscal and social policies for reducing poverty and inequality.
The analysis was carried out in five countries (Morocco, South Africa, Cameroon, Kenya, and Senegal) with the support of AFD and the Global Development Network (GDN), in partnership with the CEQ Institute and partners in each country.
Distributional impact analysis makes it possible to assess who benefits from development interventions and the extent to which they contribute to reducing inequality.
Developed as part of the European Union's “Inequality Marker” (I-Marker), the DIA and DIA+ methodologies measure, ex-ante or ex-post, the contribution of development cooperation projects to reducing inequality. The DIA methodology focuses on the socio-economic profile of beneficiaries based on wealth and living-condition indicators, while the more recent DIA+ approach complements this analysis by positioning beneficiaries within the income or consumption distribution.
Together, these tools provide a scientific measure of the distributive profile of development interventions and strengthen the capacity of development finance institutions to integrate inequality issues into the design, implementation, and evaluation of projects.
Our flagship publication: Inequalities in Sub-Saharan Africa
Rising inequalities pose substantial barriers to sustainable development, and it is within this context that the publication Inequalities in Sub-Saharan Africa: Multidimensional Perspectives and Future Challenges contributes to ongoing debates, offering a comprehensive analysis of the current challenges and future perspectives of inequality on the African continent.
The inequality diagnostic provides an overview of multidimensional inequalities in a given country based on available data, helping policymakers identify priorities for reducing inequality. It is a tool jointly developed with the African Centre of Excellence for Inequality Research (ACEIR).
Fiscal incidence analysis, developed by the Commitment to Equity (CEQ) Institute, assesses the redistributive impact of fiscal and budgetary policies.
This tool is currently being expanded to new countries and updated in others where previous analyses exist, with the aim of identifying the most effective policies for reducing poverty and inequality—working closely with partner governments.
The Multidimensional Inequality Framework, developed by Oxfam, is used to analyze the root causes and multiple dimensions of inequality in specific contexts. It is grounded in Amartya Sen’s capability approach and offers a comprehensive lens for addressing complex social disparities.
A dedicated Facility on Inequalities
AFD and the European Union have both made tackling inequalities a strategic priority. In this context, the two institutions launched a joint initiative in 2017, the EU-AFD Facility on Inequalities:
- During its first phase (2017–2020), the Facility supported 22 research projects across 32 countries, aiming to improve understanding of socioeconomic inequalities—their root causes, consequences, and dynamics. More than 100 research papers and policy briefs were published, contributing to academic debate while also initiating national-level policy dialogues on inequality.
- Building on the success of this first phase, the Extension of the EU-AFD Facility on Inequalities was launched for the 2021-2025 period. This second phase focused on supporting the design of inequality reduction policies in four partner countries: South Africa, Colombia, Indonesia, and Mexico.
- The third phase of the EU-AFD Facility on Inequalities (2026-2028) now takes a more operational approach: it focuses on how investments – particularly in infrastructures and the private sector – can help reduce inequalities. It aims, more specifically, to strengthen the effective integration of inequality reduction into Global Gateway investments, in line with the EU Inequality-Marker (I-Marker).
In the long run, this research- and capacity-building-based program will help partner countries and development actors better understand inequality dynamics and design more effective public policies in response.
Reducing Inequalities: Insights from the EU-AFD Research Facility
In this summary, you will find more information on the lessons learned, tools, and partnerships developed within the Facility from 2020 to 2025, centred around three key questions: what social and fiscal policies to reduce inequalities? How can social and fiscal policies be adapted to reduce inequalities in the context of a green transition? How can sustainable energy transitions and environmental policies be designed through an inequality-reduction lens?
Some of our research projects on inequalities
Redesigning the South African “Social Relief Distress” grant program for higher impact
Completed
2023 - 2023
Our research team
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Anda DAVID
Economist, scientific coordinator of the EU-AFD Facility on Inequalities
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Serge RABIER
Research Officer, Social Demographer
Our upcoming events
Bridging Divides: Evidence-Based Policies for Inequality Reduction and Sustainable Development
International conference of the EU-AFD Research Facility on Inequalities