Chapter 1 Defining and Measuring Inclusive Growth in the MENA Region
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Aidyn Bibolov
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Yang Yang 0000000404811396 https://isni.org/isni/0000000404811396 International Monetary Fund

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Keywords:
GCC country; GCC economy; distributions in MENA EMs; low-income country; rest-of-the-world emerging markets; Income inequality; Inclusive growth; Emerging and frontier financial markets; North Africa; Middle East; Central Asia and the Caucasus; Sub-Saharan Africa
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Abstract

Rising income inequality over the past few decades has presented an important challenge to policymakers all across the world (IMF 2007; Cerra and others 2022). In developing and emerging markets (EMs), even as growth has accelerated in response to economic reforms and integration in global trade, it is important for its sustainability to ensure that its benefits are shared more equitably across the population and accompanied by a broader access to basic services such as health and education (Ostry, Berg, and Tsangarides 2014). Accordingly, the issue of inclusive growth remains at the forefront of national economic policy agendas. The COVID-19 pandemic has added to this policy challenge by exacerbating the risk that it could leave a legacy of higher poverty and inequality (Cerra and others 2022).

Introduction

Rising income inequality over the past few decades has presented an important challenge to policymakers all across the world (IMF 2007; Cerra and others 2022). In developing and emerging markets (EMs), even as growth has accelerated in response to economic reforms and integration in global trade, it is important for its sustainability to ensure that its benefits are shared more equitably across the population and accompanied by a broader access to basic services such as health and education (Ostry, Berg, and Tsangarides 2014). Accordingly, the issue of inclusive growth remains at the forefront of national economic policy agendas. The COVID-19 pandemic has added to this policy challenge by exacerbating the risk that it could leave a legacy of higher poverty and inequality (Cerra and others 2022).

Many countries in the MENA region1 have introduced reforms aimed at ensuring that economic growth could benefit a larger share of their population and bring more opportunities and better standards of living for all. The IMF paper Opportunity for All: Promoting Growth and Inclusiveness in the Middle East and North Africa (IMF 2018) reviews and discusses these reforms, and the many gaps and challenges that remain in the MENA region.

The objective of this chapter is to take stock of progress made thus far and look at where MENA countries now stand across the many different dimensions of inclusive growth. To do so, we adopt a wide definition of inclusiveness, following the conceptual framework that was used in the recent book How to Achieve Inclusive Growth (Cerra et al. 2022). According to this framework, policies aimed at enhancing inclusiveness should focus on four dimensions: (1) ensure that the increases in income and wealth are shared broadly across populations; (2) offer more opportunities to access basic services, including health and education; (3) promote greater participation in economic life, particularly for women and youth; and (4) empower citizens so they can actively contribute to their country’s social and political life.

We look at a broad range of indicators that are generally utilized in the literature to assess where countries are on all these dimensions. We summarize the information contained in these indicators by assembling them into “inclusiveness indices” for 122 countries, which we then use to compare the MENA region with other groups and to identify major differences and idiosyncrasies within the MENA region.

Of course, trying to capture the various and complex dimensions of inclusiveness through summary indices has its own limitations, and the accuracy of the results greatly reflects the quality of the underlying indicators. The interpretation of the results should be accompanied by a careful consideration of the differences in initial economic, policy, and social conditions across countries. As emphasized by Balasubramanian and others (2021), a one-size-fits-all approach may not work well when it comes to making growth more inclusive. Still, using these indices to compare the inclusiveness of economic models across different regions and countries could help identify the main challenges for MENA countries, and where progress is needed the most in the years ahead.

Defining and Measuring Inclusive Growth

Inclusive growth is a broad concept that goes well beyond equality in income or wealth distribution. OECD defines inclusive growth as “economic growth that is distributed fairly across society and creates opportunities for all.”2 Ianchovichina and Lundstrom Gable (2012, 147) define inclusive growth as “economic growth to which people are able to contribute to and benefit from [it].” Cerra and others (2022) define inclusive growth in its broadest sense to include four pillars: benefit sharing, participation, opportunity, and empowerment (Figure 1.1). It is important to have a holistic view of inclusiveness and look at all of these pillars together, as citizens believe that growth is inclusive not only if they can share its benefits, but also if they have equal opportunities to access basic services, participate in economic life (mainly by having a job or running a business), and have their voices heard when it comes to decisions that affect society at large and their own future. We measure the extent to which growth has been inclusive in a sample of 122 countries around the world, including 15 MENA economies (see Annex 1.2 for a complete list of countries in the sample). To do so, we build eight indexes that capture key dimensions underlying the four pillars of inclusive growth, namely (1) income inequality, (2) access to education, (3) access to health services, (4) financial inclusion, (5) labor market inclusion, (6) private sector inclusion, (7) gender inclusion, and (8) quality of governance (Table 1.1). A standardized index score is assigned to each country based on its relative performance in each of these dimensions (see Annex 1.3 for details on the methodology of the indices and scores for each indicator).3

Figure 1.1.
Figure 1.1.

The IMF’s Definition of Different Dimensions of Inclusive Growth

Source: IMF staff.
Table 1.1.

Indicators of Inclusive Growth

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Sources: Global Findex database; International Financial Statistics; International Labour Organization; International Telecommunications Union; Inter-Parliamentary Union; Standardized World Income Inequality database; The 2018 World Press Freedom Index; UNESCO; UNICEF; World Bank; World Economic Forum; World Health Organization; and Worldwide Governance Indicators. Note: SMEs = small and medium enterprises; UNESCO = The United Nations Educational, Scientific and Cultural Organization; UNICEF = United Nations Children’s Fund.

Overall Inclusive Growth Index

Overall, the MENA region scores fifth out of the seven religions4 in inclusive growth. The average for MENA countries is below the rest-of-the-world average in every subindex (see Figure 1.2). MENA countries are close to other countries in five out of eight subindices: income inequality, access to education and health, and financial and labor market inclusion. The subindices where the MENA region lacks the most are private sector inclusion, quality of governance, and gender inclusion. In particular, in gender inclusion, MENA countries lag behind the rest of the world as much as in all other subindices combined.

Figure 1.2
Figure 1.2

Inclusive Growth Index Subindices Score

(0–100 worst to best)

Source: IMF staff calculations.Note: MENA = Middle East, North Africa, Afghanistan, Pakistan; RoW = rest of the world.

Looking at individual countries, the MENA region is not a homogeneous group (see Figure 1.3). The six Gulf Cooperation Council (GCC) countries have the highest inclusive growth scores, and all of them score higher than the rest-of-the-world average. The dimensions where GCC countries score better than the rest of the world in particular are financial and labor market inclusion. GCC countries benefit from their deep financial markets and low unemployment rate. The countries that have the lowest inclusive growth scores are Yemen, Mauritania, and Pakistan. These countries lag other countries in the private sector and financial inclusion the most. In quality of governance, only three countries in the MENA region are above the rest-of-the-world average.

Figure 1.3
Figure 1.3

Inclusive Growth Index Overall Score

(0–100 worst to best)

Source: IMF staff calculations.Note: The figure uses International Organization for Standardization (ISO) country codes. MENA = Middle East, North Africa, Afghanistan, Pakistan; RoW = rest of the world.

In what follows we discuss where the countries in the MENA region stand on each of the four main dimensions of inclusive growth and present conclusions from our indexes.

Benefit Sharing

A truly inclusive growth process allows all groups of society to share the benefits of greater economic activity. The sharing of the benefits of growth should involve lower poverty and greater income and wealth across the whole distribution so that, at the very least, this distribution does not become more unequal over time.

Countries in the MENA region have made good progress in reducing extreme poverty. The share of the MENA population (excluding the GCC due to data availability) in extreme poverty (living below $1.90 per day) has been declining over the past three decades and is currently not very different from the rest of the world. However, the higher poverty threshold of $3.20 per day shows that poverty has been declining in the MENA region at a slower pace than elsewhere (Figure 1.4). The slower pace of poverty reduction in the MENA region might simply reflect its relatively slower GDP growth. On average in almost each of the last three decades, real per-capita GDP growth in all MENA subregions was slower than in peer groups of countries (Figure 1.5).

Figure 1.4
Figure 1.4

Poverty Head Count Ratio at $3.20 a Day (2011 PPP)

(Percentage of population)

Source: World Bank, Development Research Group.Note: AE = advanced economies; CCA = Caucasus and Central Asia; EDA = Emerging and Developing Asia; EDE = Emerging and Developing Europe; GCC = Gulf Cooperation Council; LAC: Latin America and the Caribbean; MENA = Middle East, North Africa, Afghanistan, Pakistan; SSA = sub-Saharan Africa.
Figure 1.5
Figure 1.5

GDP per Capita Growth

(Percentage change, in constant 2017 international dollars)

Source: IMF World Economic Outlook (WEO).Note: GCC = Gulf Cooperation Council; MENA EM = Middle East, North Africa, Afghanistan, and Pakistan emerging markets; MENA LIC = Middle East, North Africa, Afghanistan, and Pakistan low-income countries.

A well-known and widely available indicator of the degree of equality in income distribution is the Gini coefficient. After we convert the estimated Gini coefficients from the World Inequality Database into a z-score index (with a higher score pointing to lower inequality), we find that (Figure 1.6):

Figure 1.6
Figure 1.6

Income Inequality Index1

Sources: The Standardized World Income Inequality Database (SWIID); and IMF staff calculations.Note: The figure uses International Organization for Standardization (ISO) country codes. AE = advanced economies; CCA = Caucasus and Central Asia; EDA = Emerging and Developing Asia; EDE = Emerging and Developing Europe; LAC = Latin America and the Caribbean; MENA = Middle East, North Africa, Afghanistan, Pakistan; MENA EM = MENA emerging markets; MENA LIC = MENA low-income countries; RoW = rest of the world; RoW AE = rest-of-the-world advanced economies; RoW EM = rest-of-the-world emerging markets; RoW LIC = rest-of-the-world low-income countries; SSA = sub-Saharan Africa.1 The higher the index, the lower the inequality.

On average the MENA region is fourth out of seven groups by income inequality.

There is large heterogeneity within the region. The income distributions in MENA EMs and low-income countries (LICs) are less unequal than their rest-of-the-world peers, while GCC countries are characterized by relatively greater income inequality. In fact, income distributions in GCC countries are the most unequal in the region, despite their higher income levels.

Opportunity

To achieve equality of outcomes, individuals need to be provided with equal opportunities to cultivate their talents and develop the skills needed for a productive life. Inequality of opportunity generates and perpetuates inequality of outcomes (Dabla-Norris and others 2015; and Cerra et al. 2022), as shown by the fact that health and education outcomes are worse for poorer countries, and for the poorest individuals within countries. Ensuring equal access to these services allows everybody a fair shot at competing in the job market so that individuals’ income can be determined mostly by their efforts and abilities.

Access to Education

Access to education is relatively low in the MENA region according to our subindex (Figure 1.7), with the region ranked fifth of the seven groups considered in this chapter. For secondary school enrollment, student-to-teacher ratio in primary school, and school life expectancy (the total number of years of schooling that a child can expect to receive from primary to tertiary education), the MENA region ranks the third lowest in the world.5 The MENA region fares slightly better in quality of vocational training with the fourth rank, but there is still plenty of room for improvement compared to other groups. These outcomes confirm previous findings that the efficiency of education spending is relatively low in the MENA region (IMF 2018).

Figure 1.7
Figure 1.7

Access to Education

Sources: UNESCO; World Economic Forum Global Competitiveness Report; and IMF staff calculations.Note: The figure uses International Organization for Standardization (ISO) country codes. AE = advanced economies; CCA = Caucasus and Central Asia; EDA = Emerging and Developing Asia; EDE = Emerging and Developing Europe; GCC = Gulf Cooperation Council; LAC = Latin America and the Caribbean; MENA AE = MENA advanced economies; MENA EM = MENA emerging markets; MENA LIC = MENA low-income countries; RoW AE = rest-of-the-world advanced economies; RoW EM = rest-of-the-world emerging markets; RoW LIC = rest-of-the-world low-income countries; SSA = sub-Saharan Africa.

The MENA region’s relative gap with the rest of the world does not seem to depend on the level of income— all three income groups lag behind their comparator groups by a similar margin. Within the region, GCC countries rank relatively higher owing to more established education systems and generous education allowances, while LICs (Mauritania and Yemen) are among the ones that lag behind, as they suffer the most from the lack of resources to build an adequate public school system. Most MENA EMs (Iran, Jordan, Egypt, Morocco, Lebanon, and Pakistan) rank below the average of the rest of the world.

Access to Health Services

On average, the MENA region ranked fifth in access to health services (Figure 1.8). The region ranks sixth on two of the four indicators used to build the index (infant mortality rate and hospital beds per 1,000 people), while it ranks fifth in universal health service coverage and fourth in healthy life expectancy. This is in line with the region’s relatively low efficiency of government health expenditures found in previous studies (IMF 2018).

Figure 1.8
Figure 1.8

Access to Health Services

Sources: World Bank, World Development Indicators; World Health Organization; and IMF staff calculations.Note: The figure uses International Organization for Standardization (ISO) country codes. AE = advanced economies; CCA = Caucasus and Central Asia; EDA = Emerging and Developing Asia; EDE = Emerging and Developing Europe; GCC = Gulf Cooperation Council; LAC = Latin America and the Caribbean; MENA = Middle East, North Africa, Afghanistan, and Pakistan; MENA EM = MENA emerging markets; MENA LIC = MENA low-income countries; RoW AE = rest-of-the-world advanced economies; RoW EM = rest-of-the-world emerging markets; RoW LIC = rest-of-the-world low-income countries; SSA = sub-Saharan Africa.

As with access to education, the gap in health services compared with the rest of the world does not seem to depend on the level of income (if anything, the distance from peers is larger for GCC countries). Within the region, Mauritania, Pakistan, and Yemen are the ones that most seem to struggle to provide basic health services to their residents. By contrast, health care systems in GCC countries and Lebanon seem to be relatively more efficient, especially in providing relatively broader coverage and ensuring longer healthy life expectancies.

Financial Inclusion

The MENA region ranks fifth in financial inclusion (Figure 1.9). This is mainly driven by the low average shares of the poorest population with an account at a financial institution (only 41 percent, compared to 92 percent in advanced economies and 57 percent in the Emerging and Developing Europe) and the poorest population share who borrowed from a financial institution (only 9 percent, compared to 16 percent in CCA, the highest performer). The MENA region performs well in terms of internet access (an indicator for availability of digital payments and online banking), ranked third in the world (with 71 percent of its population using the internet compared to 89 percent in advanced economies and 78 percent in Emerging and Developing Europe). Average results mask large heterogeneities within the region. The financial inclusion gap with the rest of the world is particularly large for the LICs in the MENA region, whereas GCC economies and emerging markets in the region are not that far from their peers. GCC countries perform relatively well in all the indicators. Among MENA EMs, Iran fares well (with about 92 of the poorest 40 percent of the population having bank accounts, 21 percent borrowing from a financial institution, and 84 percent of the population using the internet). In contrast, less than 15 percent of the poorest populations have bank accounts and less than 6 percent have bank loans in Mauritania, Pakistan, and Yemen. These countries also seem to have benefited relatively less from the digitalization of financing services compared to GCC countries and Iran, as the latter have leveraged their well-developed internet infrastructure to broaden access to financial services.

Figure 1.9
Figure 1.9

Financial Inclusion

Sources: Global Findex Database, World Bank World Development Indicators, World Economic Forum Global Competitiveness Report, and IMF staff calculations.Note: The figure uses International Organization for Standardization (ISO) country codes. AE = advanced economies; CCA = Caucasus and Central Asia; EDA = Emerging and Developing Asia; EDE = Emerging and Developing Europe; GCC = Gulf Cooperation Council; LAC = Latin America and the Caribbean; MENA = Middle East, North Africa, Afghanistan, and Pakistan; MENA EM = MENA emerging markets; MENA LIC = MENA low-income countries; RoW AE = rest-of-the-world advanced economies; RoW EM = rest-of-the-world emerging markets; RoW LIC = rest-of-the-world low-income countries; SSA = sub-Saharan Africa.

Participation in Economic Life

In addition to being able to access basic services, individuals’ well-being also depends on their ability to do well in the workplace. To ensure an inclusive participation in economic life, an economy needs to generate a sufficient amount of high-quality and productive jobs, both in the public and private sectors. As noted in the Opportunity for All paper (IMF 2018), this has been a traditional weak spot for many countries in the region that have experienced relatively low employment and labor force participation rates, particularly among women. This in turn partly reflects the scarcity of private sector jobs in the region, as private sector development continues to be constrained by policy and regulatory barriers but also, in many cases, by the presence of state-owned enterprises that enjoy monopolistic power and preferential access to factors of production at the expense of competition and productivity growth (IMF 2021a). For this reason, we focus in this section on three dimensions of participation, namely (1) participation in the labor market, (2) private sector inclusion, and (3) gender gaps.

Labor Market Inclusion

The MENA region ranks fifth in labor market inclusion (Figure 1.10), although this does not reflect low female labor participation (which will be discussed in the gender inclusion section). The MENA region has the highest youth unemployment and the lowest employment-to-population ratio. It does relatively better (ranked fifth) when it comes to active labor market policies to train and reskill the population. The MENA region’s share of self-employed workers (a proxy for informality) is the third lowest, mainly reflecting the GCC’s strict policy with regard to expatriate workers, who can only enter and reside in these countries when employed.

Figure 1.10
Figure 1.10

Labor Market Inclusion

Sources: ILOSTATS; World Bank, World Development Indicators; and IMF staff calculations.Note: The figure uses International Organization for Standardization (ISO) country codes. AE = advanced economies; CCA = Caucasus and Central Asia; EDA = Emerging and Developing Asia; EDE = Emerging and Developing Europe; GCC = Gulf Cooperation Council; LAC = Latin America and the Caribbean; MENA = Middle East, North Africa, Afghanistan, and Pakistan; MENA EM = MENA emerging markets; MENA LIC = MENA low-income countries; RoW AE = rest-of-the-world advanced economies; RoW EM = rest-of-the-world emerging markets; RoW LIC = rest-of-the-world low-income countries; SSA = sub-Saharan Africa.

The comparisons by level of income show that the main challenges are in MENA EMs and LICs, as these groups on average perform much worse than their comparator groups. North African countries, in particular, have very high youth unemployment rates. Employment rates tend to be relatively low in MENA EMs and LICs, where they average 39 percent of the working age population (with Jordan, Yemen, and Algeria having the lowest employment rates in the region), whereas GCC countries experience generally higher employment rates (averaging 69 percent), thanks to the large share of expatriate workers for whom a working visa is required. Several MENA EMs and LICs (in particular, Pakistan, Mauritania, and Yemen) also show a relatively high share of self-employed, potentially pointing to large informal sectors in these economies. GCC countries’ high employment and low self-employment reflect the unique features of the GCC labor market— almost all expatriate workers need to be employed to stay in the country. GCC countries also appear to implement active labor market policies to help unemployed people reskill and find new employment.

Private Sector Inclusion

The MENA region scores relatively poorly in private sector inclusion, ranked fifth in the world (Figure 1.11). Banks in the MENA region strongly favor government and SOEs over the private sector—the ratio of private-to-public credit in the MENA region is only 2.8, the lowest in the world. The MENA region fares better in terms of extent of market competition and financing of small and medium enterprises, ranked third for both indicators.

Figure 1.11
Figure 1.11

Private Sector Inclusion

Sources: IMF International Financial Statistics; Global Findex Database; World Bank World, Development Indicators; World Economic Forum Global Competitiveness Report; and IMF staff calculations.Note: The figure uses International Organization for Standardization (ISO) country codes. AE = advanced economies; CCA = Caucasus and Central Asia; EDA = Emerging and Developing Asia; EDE = Emerging and Developing Europe; GCC = Gulf Cooperation Council; LAC = Latin America and the Caribbean; MENA = Middle East, North Africa, Afghanistan, and Pakistan; MENA EM = MENA emerging markets; MENA LIC = MENA low-income countries; RoW AE = rest-of-the-world advanced economies; RoW EM = rest-of-the-world emerging markets; RoW LIC = rest-of-the-world low-income countries; SSA = sub-Saharan Africa.

Looking at differences by level of income shows that MENA LICs had significantly lower private sector inclusion compared to their rest-of-the-world (RoW) peers, whereas MENA EMs were close to the rest-of-the-world emerging market (RoW EM) average. Within the MENA region, the United Arab Emirates (UAE) leads the region in terms of private sector inclusion, followed by Saudi Arabia and Qatar, while Yemen and Mauritania have the lowest private sector inclusion in the region. Most MENA countries perform poorly in private versus public credit, suggesting an oversized footprint of the state in the economy in the region. Perceptions of market dominance by a few firms and difficulty in financing small and medium enterprises are not very severe in the UAE, Qatar, and Saudi Arabia, whereas they are of a much greater concern in other countries, in particular in Yemen and Mauritania.

Gender Inclusion

The MENA region has the lowest level of gender inclusion in the world. Our index confirms that this is a key aspect of inequality in the MENA region (Figure 1.12). Significant gender gaps exist in MENA countries in virtually every indicator of inclusion we used. The MENA region fares the lowest in four out of the five indicators for gender inclusion (employment; account at a financial institution; proportion of seats held by women in national parliament; and Women, Business and the Law Index). The region ranks the second lowest in terms of gender gap in secondary school enrollment.

Figure 1.12
Figure 1.12

Gender Inclusion

Sources: ILOSTATS; Global Findex Database; UNESCO; Inter-Parliamentary Union (IPU); World Bank Women Business and the Law Index; and IMF staff calculations.Note: The figure uses International Organization for Standardization (ISO) country codes. AE = advanced economies; CCA = Caucasus and Central Asia; EDA = Emerging and Developing Asia; EDE = Emerging and Developing Europe; GCC = Gulf Cooperation Council; LAC = Latin America and the Caribbean; MENA = Middle East, North Africa, Afghanistan, and Pakistan; MENA EM = MENA emerging markets; MENA LIC = MENA low-income countries; RoW AE = rest-of-the-world advanced economies; RoW EM = rest-of-the-world emerging markets; RoW LIC = rest-of-the-world low-income countries; SSA = sub-Saharan Africa.

While GCC countries perform somewhat better than poorer countries, all income groups in the MENA region face substantial gender gaps. In fact, all MENA countries are below RoW average when it comes to gender inclusion. The difference between male and female employment rates averages 45 percentage points (pps) in the MENA region compared to the world average of 20 pps, ranging from the high of 59 pps in Saudi Arabia to the low of 32 pps in Mauritania. The gender gap in schooling is more heterogeneous in the region, with secondary school enrollment rates being higher for women in Jordan, Mauritania, Algeria, Bahrain, and Tunisia. Gender inequality in political involvement in the MENA region is the largest among the groups. The proportion of seats held by women in national parliaments is well below 30 percent in all countries except the UAE, where there is an equal share of seats across the two genders. In the Women, Business and the Law Index, which measures women’s participation in business and law, only the UAE comes close to the world average whereas all other countries trail behind.

Empowerment in Social and Political Life

An inclusive economy also requires ensuring that there are no persisting disparities in social treatment among groups. Empowerment thus refers to people being able to have a voice, express their preferences, and being able to participate in social and political life. This requires societies to combine efficient economic systems with an effective system of governance, well designed institutions, and strong public sector accountability. The index we build for this dimension thus aims at capturing the quality of governance across the 127 countries considered in this chapter.

Quality of Governance

The MENA region ranks fifth in quality of governance (Figure 1.13). The region ranks particularly low on the World Press Freedom Index, where it is ranked last. The region ranks sixth in terms of government effectiveness and regulatory quality indicators, while it ranks third in both control of corruption and rule of law.

Figure 1.13
Figure 1.13

Quality of Governance

Sources: Reporters without Borders’ Worldwide Governance Index; and IMF staff calculations.Note: The figure uses International Organization for Standardization (ISO) country codes. AE = advanced economies; CCA = Caucasus and Central Asia; EDA = Emerging and Developing Asia; EDE = Emerging and Developing Europe; LAC = Latin America and the Caribbean; MENA = Middle East, North Africa, Afghanistan, and Pakistan; MENA AE = MENA advanced economies; MENA EM = MENA emerging markets; MENA LIC = MENA low-income countries; RoW AE = rest-of-the-world advanced economies; RoW EM = rest-of-the-world emerging markets; RoW LIC = rest-of-the-world low-income countries; SSA = sub-Saharan Africa.

The lag with peer countries cuts across all levels of income, and the rich countries underperform their respective comparators more than the poor countries. Within the region, only the UAE, Qatar, and Oman exceed the RoW average. Yemen and Iran fare poorly in all five governance indicators. The UAE and Qatar perform well in most indicators (except press freedom), which reflects the UAE and Qatar’s relatively sound standing in terms of business environment, in particular for foreign companies and individuals. The universal underperformance in press freedom in the MENA region suggests greater transparency and accountability are needed to improve governance (IMF 2021b).

Conclusions

Combining several indicators widely used in the now rich literature on inclusive growth into a series of “inclusiveness indexes” allows us to gauge how inclusive growth is in MENA countries compared to peer countries. Relative assessments based on indexes always need to be taken with caution and need to be accompanied by a careful analysis of different socioeconomic conditions. Still, we believe that this exercise does have value in providing a snapshot of the state of play in this area and helps set the ground for the following chapters in this book.

The main message from our inclusiveness indexes confirms the main conclusions from the Opportunity for All paper (IMF 2018): while MENA countries have managed to make good progress in reducing extreme poverty and do not appear to exhibit particularly unequal income distributions (especially the EMs and LICs economies), the region lags other parts of the world in many of the dimensions of inclusive growth we considered in this chapter, particularly the participation and empowerment dimensions. These are the areas where action is more needed to make sure the benefits and opportunities of growth will spread more equally across the whole population in the MENA region. The analysis in this chapter can help prioritize the needed reforms to promote greater inclusive growth and guide policymakers toward preparing an agenda for the way forward for the next decade.

Annex 1.1. Data Description

Annex Table 1.1.1

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Sources: Global Findex Database; International Financial Statistics; International Labour Organization; International Telecommunications Union; InterParliamentary Union; Standardized World Income Inequality Database; The 2018 World Press Freedom Index; UNESCO; UNICEF; World Bank; World Economic Forum; World Health Organization; and Worldwide Governance Indicators. Note: UNESCO = United Nations Educational, Scientific, and Cultural Organization; UNICEF = United Nations Children’s Fund.

Annex 1.2. Country Grouping

Annex Table 1.2.1

Rest-of-the-World Country List

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Source: IMF World Economic Outlook. Note: The table uses International Organization for Standardization (ISO) country codes. AE = advanced economies; CCA = Caucasus and Central Asia; EDA = Emerging and Developing Asia; EDE = Emerging and Developing Europe; LAC = Latin America and the Caribbean; MENA = Middle East, North Africa, Afghanistan, and Pakistan; MENA AE = MENA advanced economies; MENA EM = MENA emerging markets; MENA LIC = MENA low-income countries; RoW AE = rest-of-the-world advanced economies; RoW EM = rest-of-the-world emerging markets; RoW LIC = rest-of-the-world low-income countries; SSA = sub-Saharan Africa.

Annex 1.3. Inclusive Growth Indexes

We build the inclusive growth index using eight subindices based on the four pillars of inclusive growth. For each subindex, we use a series of indicators described in Table 1.1. The selection of indicators aims to strike a balance between their relevance for our purposes and the country coverage— while an indicator may be very relevant for measuring a particular aspect of inclusion, we do not include it if it is not available for all countries in our sample. We also keep the selection of indicators relatively parsimonious, by choosing those that have a clear interpretation, come from well-established data sources, and have a proven “track record” in the literature. Most of the data comes from the International Labour Organization, IMF, United Nations Educational, Scientific, and Cultural Organization, the World Bank, the World Economic Forum, and World Health Organization.

We then select three to five indicators for each index (except for income inequality, for which we only use the income Gini coefficient). The values of each indicator are standardized into z-scores, as we subtract the sample mean and divide the difference by the sample standard deviation, and then are translated into standard scores from 0 to 100 (0 as the worst performer and 100 as the best performer). The indexes are then built by aggregating these standardized scores, using equal weights.6 For each index, we (1) compare the average for MENA economies with averages for the other six groups (advanced economies, Caucasus and Central Asia, sub-Saharan Africa, Emerging and Developing Asia, Emerging and Developing Europe, Latin America and the Caribbean), (2) look at differences across levels of income by comparing averages for GCC economies, MENA EMs, and LICs with their respective world peers, (3) look at the values for the MENA region economies comparing them with the regional average.

Annex Table 1.3.1

I MENA Subindex Scores (0–100 from worst to best)

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Source: IMF staff calculations. Note: MENA = Middle East, North Africa, Afghanistan, and Pakistan; RoW = rest of the world. See Annex Table 1.2.1 for rest of world country list. The table uses International Organization for Standardization (ISO) country codes.
Annex Table 1.3.2

MENA Indicator Level Scores (0–100 from worst to best)

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Source: IMF staff calculations. Note:MENA = Middle East, North Africa, Afghanistan, and Pakistan; RoW= rest of the world. See Annex 1.2.1 for rest-of-the-world country list. The table uses International Organization for Standardization (ISO) country codes.

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1

Throughout this chapter MENA refers to the Middle East, North Africa, Afghanistan, and Pakistan.

2

OECD Inclusive Growth website: https://www.oecd.org/inclusive-growth.

3

We use a country’s latest available data for each indicator. Depending on the indicator and country, the latest available year ranges from 2000 to 2021, and 99 percent of the data is from post 2010.

4

We divide the world into seven groups based on income levels and geographical locations, namely advanced economies (AE), Middle East, North Africa, Afghanistan, and Pakistan (MENA), Caucasus and Central Asia (CCA), sub-Saharan Africa (SSA), Emerging and Developing Asia (EDA), Emerging and Developing Europe (EDE), Latin America and the Caribbean (LAC). We further divide the MENA region into three groups based on income levels. The Gulf Cooperation Council includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates; MENA emerging markets (MENA EM) include Algeria, Egypt, Iran, Iraq, Jordan, Lebanon, Libya, Morocco, Pakistan, Tunisia, and West Bank and Gaza; and MENA low-income countries (MENA LIC) include Afghanistan, Djibouti, Mauritania, Sudan, Somalia, Yemen, and Syria.

5

See Annex 1.3 for the MENA region’s performance in each indicator.

6

There are various ways to standardize variables for index construction, but the z-score is one of the most commonly used methods (OECD 2008).

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Cover Promoting Inclusive Growth in the Middle East and North Africa
Promoting Inclusive Growth in the Middle East and North Africa
Challenges and Opportunities in a Post-Pandemic World
Editor:
Mr. Roberto Cardarelli
,
Ms. Mercedes Vera-Martín
, and
Mr. Subir Lall
ISBN:
9798400200038
Publication Date:
11 Oct 2022
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9798400200038.071
Pages:
150
Figure 1.1.

The IMF’s Definition of Different Dimensions of Inclusive Growth
Figure 1.2

Inclusive Growth Index Subindices Score

(0–100 worst to best)
Figure 1.3

Inclusive Growth Index Overall Score

(0–100 worst to best)
Figure 1.4

Poverty Head Count Ratio at $3.20 a Day (2011 PPP)

(Percentage of population)
Figure 1.5

GDP per Capita Growth

(Percentage change, in constant 2017 international dollars)
Figure 1.6

Income Inequality Index1
Figure 1.7

Access to Education
Figure 1.8

Access to Health Services
Figure 1.9

Financial Inclusion
Figure 1.10

Labor Market Inclusion
Figure 1.11

Private Sector Inclusion
Figure 1.12

Gender Inclusion
Figure 1.13

Quality of Governance