Muhammad Ibrahim Saeed, Saima Sarwar

Empirical Assessment of Business Competitiveness and Income Distribution: A Case of Selected Lower-Middle-Income Economies

Introduction

Empirical assessment of business competitiveness and income distribution: a case of selected lower-middle-income economies. Quantifies business competitiveness & income distribution in lower-middle-income economies (2008-2018). Reveals a U-shaped pattern and development expenditure's impact on income inequality.

Abstract

The present study attempts to quantify the quadratic nexus between income distribution and business competitiveness. The study also adds interaction term of development expenditure with business competitiveness to examine impact of both on income inequality. The present study uses yearly panel data from 2008 to 2018 for 27 lower-middle-income economies. The results of the study are based on Quantile Regression for Panel Data (QRPD). The findings of the study reveal a U-shaped pattern between business competitiveness and income inequality. Further, an insignificant negative impact of development expenditure on income inequality is observed. However, if lower-middle-income economies take into account development expenditure with business competitiveness then the impact on income inequality gets significant with the same sign. The variable urban population is significant and decreases income inequality while broad money (proxy of financial development), trade, and rule of law have a significant role in increasing income inequality. The study suggests that development expenditure and business competitiveness may increase simultaneously for more equal distribution of income. Moreover, standardization of rule of law in lower-middle-income economies is also very important for equal distribution of income. 

Review

This study presents an empirical investigation into the intricate relationship between business competitiveness and income distribution within a specific context of lower-middle-income economies. The authors employ a panel data approach spanning 2008-2018 across 27 countries, utilizing Quantile Regression for Panel Data (QRPD) to explore a quadratic nexus and the moderating role of development expenditure. This methodological choice is commendable as it allows for a nuanced understanding of how these relationships manifest across different points of the income distribution, moving beyond average effects typically captured by standard regression techniques. The paper's focus on lower-middle-income economies is particularly relevant, given their ongoing development challenges and the critical importance of equitable growth. A key finding of the research is the identification of a U-shaped relationship between business competitiveness and income inequality, suggesting that both very low and very high levels of competitiveness might be associated with higher inequality, with an optimal range in between for more equitable outcomes. While development expenditure alone showed an insignificant negative impact on inequality, its interaction with business competitiveness significantly altered this dynamic, indicating the potential for synergistic policy interventions. The study also sheds light on the influence of other factors, noting that urban population contributes to decreasing inequality, whereas financial development (proxied by broad money), trade, and the rule of law surprisingly appear to exacerbate it. These findings challenge conventional wisdom in some areas and underscore the complex interplay of socio-economic variables in these specific economies. The policy implications derived from this study are particularly salient, advocating for the simultaneous increase of development expenditure and business competitiveness to foster more equal income distribution. Furthermore, the emphasis on standardizing the rule of law to achieve equitable outcomes is a critical recommendation, especially given its identified role in increasing inequality in the baseline. While the abstract provides a strong overview of the methodology and results, future research could benefit from exploring the specific channels through which financial development, trade, and the rule of law contribute to increased inequality in this context, offering more targeted policy guidance. Overall, the paper makes a valuable contribution to the literature on income inequality and competitiveness, offering novel insights relevant for policymakers in lower-middle-income countries.

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