Macroeconomic Variables and Poverty in Palestine: Polices, Effects, Implications and Poverty Reduction
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Al-Azhar University-Gaza Deanship of Postgraduate Studies Faculty of Economics and Administrative Science Department of Economy Macroeconomic Variables and Poverty in Palestine: Polices, Effects, Implications and Poverty Reduction By Hakam Abdel Hakeem Atallah AL Ajrami Supervisor Dr. Mahmoud M. Sabra Associate Professor of Economics A Thesis Submitted in Partial Fulfillment of the Requirements for the Degree of Master in Economy 2017 بسم اهلل الرمحن الرحيم قُلْ إِنَّ صَﻻَتِي وَنُسُكِي وَمَحْيَايَ وَمَمَاتِي لِلّهِ رَبِّ الْعَالَمِنيَ }162{ ﻻَ شَرِيكَ لَهُ وَبِذَلِكَ أُمِرْتُ وَأَنَاْ أَوَّلُ املُسْلِمِنيَ }163{ صدق هللا العظيم اﻷنعام 162 163- Holy Quran quote i Dedication I dedicate my study to my dear parents My sisters and brothers My friends and colleagues My teachers at Al-Azhar University ii Acknowledgements First, I would like to express my appreciation to Allah for giving me the power, knowledge, and health to start and complete this thesis. Special thanks are due to Dr. Mahmoud Sabra, my thesis supervisor, for his endless support, guidance, and knowledge. I appreciate and thank the referees; Dr.Abdel Hakeem Ahmad Eltalla (Associate Professor of Economics, Alaqsa University) and Dr.Naseem Abo Jamie (Associate Professor of Economics, Al Azhar University). for their pieces of advice, comments, and great efforts. Also, I thank Dr.Abdullah Kurraz for his English language editing, and my friend Haytham Al Najar for his help in the econometric section. iii Abstract This study investigates the impact of macroeconomic variables on poverty in Palestine for the period 1995 to 2014 by using linear regression and simultaneous equations analysis. In addition, descriptive analysis has been used to identify the phenomenon of poverty, its causes, measurements and its indicators after reviewing the poverty theories that explain poverty. The findings of empirical analysis show that economic growth, government expenditure, and foreign direct investment have a negative impact on poverty, where the increase of GDP per capita by 1% leads to a decrease in poverty by about 1.5 %. The increase of government expenditure by 1% leads to a decrease in poverty by about 0.59%. Also, the increase of foreign direct investment by 1% leads to a decrease in poverty by about 0.06 %. However, public debt, foreign aid, gross domestic savings, unemployment, total population, economic openness, and coverage ratio of imports by exports have a positive impact on poverty. Moreover, the increase of public debt, foreign aid, gross domestic savings, unemployment, economic openness and coverage ratio of imports by exports by 1% leads to an increase in poverty by about 0.25%, 0.26%, 0.33%, 0.78%, 2.2% and 0.65% respectively. The study recommends that the government and the NGOs should be concerned to set development plans to target and reduce poverty by concentrating on production sectors, supporting the private sector, supporting the local production, and attracting more investment from abroad. Furthermore, the aid provided by NGOs should be directed to the developmental projects rather than the relief projects. Keywords: Poverty, Macroeconomic variables, Economic growth, time series, 2SLS JEL Classification: I32, P36, P46 iv الملخص هدفت هذه الدراسة إلى تحليل أثر المتغيرات اﻻقتصادية الكلية على الفقر في فلسطين للفترة 1995-2014 باستخدام اﻻنحدار الخطي والمعادﻻت اﻵنية، باﻹضافة إلى استخدام المنهج الوصفي لتحديد ظاهرة الفقر واﻷسباب الكامنة خلفه؛ وكذلك الطرق المختلفة لقياس الفقر ومؤشراته واستعراض النظريات اﻻقتصادية المفسرة لتلك الظاهرة. وقد أظهرت النتائج القياسية أن النمو اﻻقتصادي واﻹنفاق الحكومي واﻻستثمار اﻷجنبي المباشر لهم تأثير سلبي على الفقر، حيث تؤدي زيادة نصيب الفرد من الناتج المحلي اﻹجمالي بنسبة 1% إلى تخفض الفقر بنحو 1.5 %، وزيادة اﻹنفاق الحكومي بنسبة 1 % تؤدي إلى تخفيض الفقر بنحو 0.59 %، كما ان زيادة اﻻستثمار اﻷجنبي المباشر بنسبة 1% يؤدي لتخفيض الفقر بنسبة 0.06%، في حين أن الدين العام والمساعدات الخارجية والمدخرات المحلية والبطالة واﻻنفتاح اﻻقتصادي ونسبة تغطية الصادرات للواردات لهم تأثير إيجابي على الفقر، حيث تؤدي الزيادة في الدين العام والمساعدات الخارجية والمدخرات المحلية والبطالة واﻻنفتاح اﻻقتصادي ونسبة تغطية الصادرات بنسبة 1 % إلى زيادة الفقر بنحو 0.25 %، 0.26 % ، 0.33 %، 0.78 % ، 2.2 % ، 0.65 % على التوالي.. وأوصت الدراسة الحكومة والمؤسسات المعنية بوضع الخطط التنموية ﻻستهداف الفقر والحد منه من خﻻل التركيز على القطاعات اﻹنتاجية ودعم القطاع الخاص، باﻹضافة إلى تشجيع ودعم اﻹنتاج المحلي وجذب المزيد من اﻻستثمارات من الخارج، وتوجيه المساعدات المقدمة من المؤسسات غير الحكومية ﻷغراض تنموية تخلق فرصا للعمل بدﻻ من الطبيعة اﻹغاثية لتلك المساعدات. v Table of Content Holy Quran quote ................................................................................................................. i Dedication ............................................................................................................................. ii Acknowledgements ............................................................................................................. iii Abstract ............................................................................................................................... iv v .................................................................................................................................... الملخص List of Tables ....................................................................................................................... ix List of Figures ...................................................................................................................... x Research Framework .............................................................................................. xi Introduction ................................................................................................................ xi Problem Statement ...................................................................................................... xii Importance of the Study ............................................................................................... xii Study contribution ...................................................................................................... xii Hypotheses ................................................................................................................ xii Objectives ................................................................................................................ xiii Data and Methodology ................................................................................................ xiii Literature Review ...................................................................................................... xiv Chapter 1 Theoretical Framework ........................................................................ 1 1.1 Introduction ............................................................................................................1 1.2 The concept of poverty .............................................................................................1 1.3 The main approaches to measure poverty .....................................................................2 1.4 The major causes of poverty ......................................................................................6 1.5 A review of the economic theories of poverty ...............................................................7 1.5.1 The vicious circle theory .................................................................................................................. 7 1.5.2 The Marxists theory ......................................................................................................................... 8 1.5.3 Keynesian theory ............................................................................................................................. 9 1.5.4 Natural circumstantial theory ........................................................................................................... 9 1.6 Economic growth, income inequality and poverty ....................................................... 10 vi 1.7 Summary .............................................................................................................. 12 Chapter 2 Theoretical and Empirical Literature Review ................................. 13 2.1 Introduction: ......................................................................................................... 13 2.2 Summary .............................................................................................................. 26 Chapter 3 Macroeconomic Variables and Poverty in Palestine ....................... 27 3.1 Introduction .......................................................................................................... 27 3.2 Overview of the Palestinian economy main indicators .................................................. 27 3.2.1 Gross Domestic Product (GDP) ..................................................................................................... 28 3.2.2 Gross Domestic Product Per Capita (GDPPC) .............................................................................. 29 3.2.3 Public Debt .................................................................................................................................... 30 3.2.4 Gross Capital Formation ................................................................................................................ 31 3.2.5 Unemployment .............................................................................................................................