The Role of Economic Institutions and Macroeconomic Policies on Inclusive Growth: An Empirical Study in the ESCWA Region

Despite implementing several economic reforms and structural adjustment processes in various Arab countries, these efforts were not potent enough and policymakers were unable to enhance the standard of living in these countries. In fact, over the last seventeen years, the growth performance of the Economic and Social Commission of Western Asia (ESCWA) region as a whole was considered to be disappointing. The region suffered from the poor management of economic choices, weak governance and institutional frameworks, and corruption. As a result, inclusive economic growth in most of the ESCWA countries has not been readily implemented. Decades of prioritizing economic growth over inclusive growth and social equity have been the reason for high levels of wealth and income inequality in most of the ESCWA countries. This paper examines the role of economic institutions and macroeconomic policies on inclusive growth by generating a dynamic panel (GMM approach) for 16 of the ESCWA countries during the period between 2000-2016. Therefore, this paper aims to find out the determinants that widen the gap between economic and inclusive growth. The findings suggest that institutional variables (government effectiveness), financial deepening, government expenditure on health, years of schooling, and inflation have had a positive and significant impact on inclusive growth in the ESCWA region. In contrast, rule of law, and gross fixed capital formation have had a negative impact. The results suggest that inclusive growth implementation is all about governance with its overarching perspectives. Achieving good governance requires accountability, inclusiveness, and transparency within public affairs management.