Inequality, Economic Growth, and Poverty in the Middle East and North Africa (MENA)

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By Mthuli Ncube

The wave of protests and unrest that swept across the Middle East and North Africa (MENA) region since 2011 has continued in different forms. In addition to demands for more economic and political inclusion, the protests had been largely sparked by a refusal to tolerate any longer the gross socio-economic inequality perpetuated by long-entrenched “elites” in power. In many countries today, the issue of inequality has come to the front burner of international and national discourse with a view to finding solutions.

Inequality which is measured by the Gini coefficient plays a significant role in affecting poverty. In the AfDB Working Paper 195 (December 2013), Ncube, Anyanwu and Hausken analyzed the effect of income inequality on economic growth and poverty in the MENA region during the period 1985-2009. The empirical results show that income inequality reduces economic growth and increases poverty in the region. Other factors having significant negative effect on economic growth in the MENA region include previous growth rate, exchange rate, government consumption expenditure or government burden, initial per capita GDP, inflation, and primary education. On the other hand, variables positively and significantly associated with MENA’s economic growth are domestic investment rate, urbanization, infrastructure development, and mineral rent as a percentage of GDP. Apart from income inequality, other factors increasing poverty in the region are foreign direct investment, population growth, inflation rate, and the attainment of only primary education. Poverty-reducing variables in the region include domestic investment, trade openness, exchange rate, income per capita, and oil rents as a percentage of GDP.

Key policy implications of this research include: (a) the use of targeted community-based conditional cash transfers and expenditures as effective safety nets and levers of poverty reduction and redistribution; (b) promotion of domestic investment through the deepening of reforms, the mobilization of higher domestic savings through tax reforms, cost sharing in the provision of public goods and services and enhancing public expenditure productivity; (c) increasing per capita income through increased competitiveness, the creation of more quality jobs and increased participation in economic activity, dismantling of existing structural bottlenecks to private and public investment, scaling-up investments in hard and soft infrastructure, and increasing productivity, especially in agriculture; (d) promoting government expenditure effectiveness; (e) greater prudence in monetary and fiscal management; (f) adoption of the value-chain approach to add value to products, and scaling-up investment of physical, human, social and institutional capital, and innovation and technological progress; (g) intensification of family planning services efforts and activities; (h) regulation of the inflow of foreign capital to ensure labour-intensive industries are not displaced by globalization; (i) intensification of productive infrastructure development; and (j) addressing skills mismatch and the promotion of the up-skilling, better training and education for the low-skilled workforce.

Professor Mthuli Ncube is the former Chief Economist and Vice-President of the African Development Bank, and holds a PhD in Mathematical Finance from Cambridge University, UK, on “Pricing Options under Stochastic Volatility”.


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