Inequality, Poverty and Globalisation in OIC Countries: A Dynamic Comparative Analysis

1. Inequality, Poverty and Globalisation in OIC Countries: A Dynamic Comparative Analysis Muhammad Tariq Majeed PhD Student University of Glasgow, UK m.majeed.1@research.gla.ac.uk Introduction Results • Trade liberalizationis now generally considered as economically beneficial because it increases the size of the pie. • However, the recent anti-globalization critics have suggested that it is socially harmful on several dimensions, among them the issues of poverty, income inequality and unemployment drawing significant attention of development practitioners and policy makers. • it is quite possible that successful open regimes, even in the long run, may leave a number of people behind in poverty Table 1: Inequality and Globalization in OIC and Non OIC Countries Research Questions Does economic growth benefit different economic actors equally or it comes at the cost of increased inequality leaving poor actors behind? Is the effect perhaps different over the path of development in the long run? Does high financial intermediation reduce poverty and inequality? Does globalization spill over benefits equally? What is the role of government in all this; does government spending reduce potentially existing inequalities and poverty? Inequality Model . where log Giniit is the natural logarithm of the Gini Index, Log Yit is the natural logarithm of income per capita, adjusted using PPP weights, Log Y2it controls for nonlinear conditional convergence across countries and εit is a disturbance term The expected signs for γ1 and γ2 in equation (1) are positive and negative, respectively. , Poverty Model . Table 2: A Comparative Summary of Inequality and Poverty Consequences of Globalization where Pit refers to the natural logarithm of the head count ratio, git is the annual growth rate of GDP between two survey years, Ineqit is the natural logarithm of the gini index Xit is a vector of control variables for poverty other than economic growth and income distribution Data and Estimation Procedure The data for the study has been taken from World Development Indicators (WDI) 2009 provided by ESDS, Garbis, Iradian (2005) and reports published by UNDP. The empirical part of the analysis focuses on 22 OIC countries and 43 non OIC countries. The globalization has been measured using two alternative variables namely trade openness and foreign direct investment (FDI). The trade openness is measured as the ratio of exports plus imports to GDP and FDI is measured as the ratio to GDP . I have used 2SLS, LIML and GMM estimator for estimation of inequality and poverty equations. Conclusion The major findings of the study are: First, a non monotonic relationship between income distribution and level of economic development holds in both samples of countries. However, this relationship is relatively strong in Non OIC countries. Second, both openness to trade and FDI effect adversely income distribution in OIC countries. However, the openness to trade is relatively more harmful in OIC countries. Third, high financial liberalization exert negative and significant influence on income distribution only in OIC countries. Fourth, inflation seems to distort income distribution and poverty in both set of countries. Fifth, openness to trade accentuates not ameliorates poverty in both set of countries while FDI hurts only to the poor of Non OIC countries. Finally, the government emerges as a major player in impacting inequality and poverty in Non OIC countries while its role is insignificant in OIC world. The overall results of the study indicate that globalization exerts adverse distributional and poverty consequences in developing countries. A comparative view of Kuznets curve in developing countries