Towards the reversal of poverty and income inequality setbacks due to COVID-19: the role of globalisation and resource allocation

ABSTRACT

This study contributes to the policy discourse aimed at addressing the welfare setbacks imposed implicitly by the coronavirus pandemic. To this end, we draw macrodata for the period 1990 – 2019 to examine whether globalisation and resource allocation matter for reducing poverty and income inequality in the Middle East and North Africa (MENA). Robust evidence from the GMM estimator shows that: (1) economic globalisation reduces both poverty and income inequality, (2) though social globalisation heightens income inequality in the region, it has no significant effect on poverty; (3) compared to the effect on poverty, economic globalisation is remarkable in reducing income inequality in the presence of efficient resource allocation. Policy recommendations are provided in line with Agenda 2030 and the rise in social globalisation of the region.

KEYWORDS:

• Economic Integration
• Financial Deepening
• GMM
• MENA
• Globalisation
• Inequality
• Poverty

JEL CLASSIFICATION:

• F14
• F15
• F6
• I3
• O53
• 055

Acknowledgements

The authors are indebted to the editors and reviewers for their constructive comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary Material

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Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1. The region has been struggling as growth slumped sharply from 5% in 2016 to 1.3% in 2019 primarily due to poor performance of the hydrocarbon sub-sector amid US sanctions on Iran (World Bank 2019)

2. In respective terms, SDGs 1, 8 and 10 seek to end poverty, ensure decent work and economic growth, and reduce income inequality.

3. The concern centres on the evidence that poverty and income inequality can have dire ramifications for the quality of life, health, education, social cohesion, and mortality (World Bank 2020b; Pickett and Wilkinson 2015; Burns 2015)

4. Corral et al. (2020) reports that the MENA has seen extreme poverty rate rise, from 2.3% in 2013 to 3.8% in 2015; it then almost doubled to 7.2% in 2018.

5. Social globalisation comprises information, culture and interpersonal relations.

6. To reflect recent changes in purchasing power parity (PPP), and data availability on population, inflation, and national income accounts, Ferreira et al. (2015) revised the 2005-PPP poverty line of US$1.25 to US$1.90 to ensure maximum international comparison. The new calculation also takes the average value of national poverty lines from 15 of the poorest economies in the world: Chad, Ethiopia, The Gambia, Ghana, Guinea-Bissau, Malawi, Mali, Mozambique, Nepal, Niger, Rwanda, Sierra Leone, Tajikistan, Tanzania, and Uganda, from a sample of 74 countries.

7. With Alvaredo et al. (2019) showing that between the period 1990–2016, the MENA tops as world’s most unequal region with the top 1% holding 64% of all incomes, inequality raises serious threats for both poverty and social cohesion.

8. Lustig, Lopez-Calva, and Ortiz-Juarez (2012) show that social protection in the forms of direct transfers partly accounts for the income inequality reduction gains in the LAC over the last two decades.

9. The Islam State and Al Qaeda terrorist groups have contributed immensely to making the region unsafe for foreign investors.

10. It is also clear that South Asia observed such developments from 1993–2008.

11. The ILO (2020b) projects rising levels of vulnerable employment worldwide with the SSA, LAC and MENA leading the way.

12. A Gini coefficient of zero expresses perfect equality in given country while 1 denotes the case of extreme inequality.

13. Poverty gap at $1.90 a day (2011 PPP) is the mean shortfall in income or consumption from the poverty line of $1.90 a day (counting the nonpoor as having zero shortfall), expressed as a percentage of the poverty line.

14. The KOF Index of Globalisation is an index measuring the degree of globalisation of 122 countries. The overall index of globalisation provides statistics on three main dimensions of globalisation- economic, social, and political.

15. These are: (1) economic globalisation and government expenditure, and (2) economic globalisation and financial deepening.

16. Inequality enters the poverty equation only as a control following the argument of Ravallion and Chen (2019) and Bergstrom (2020)

17. (i) the lags of the outcome variables are introduced in the models, and (ii) In all GMM estimations, the instruments used are the lags of the regressors.

18. The SSA is one of the regions with huge potential for trade gains – in terms of raw materials, youthful manpower and market area.

19. According to the World Bank (2020a), the MENA, and Europe and Central Asia are the two most commodity dependent regions of the world.

20. The much dependent oil sector of the region for social protection is floundering,

21. Algeria, Djibouti, Egypt, Morocco, Tunisia, Syria, Turkey, Yemen, West Bank, Iran and Iraq.

Additional information

Funding

The authors have no funding to report.