Cointegration Relationship between Growth, Inequality and Poverty In Tunisia

Abstract

The aim of this paper is to investigate the direction of causality between poverty, inequality and economic growth in Tunisia using time series data covering the period 1970-2013. We use in this paper the ARDL bound testing approach to cointegration and Toda and Yamamoto (1995) modification of the Granger causality test. The result of bound testing reveals that there is an evidence of long-run relationship among the variables. In long term, we conclude that there is a positive relationship between income inequality and poverty. However, in the short-run there is a positive relation between inequality and growth to poverty. The results of Toda and Yamamoto indicate that there is a unidirectional causal relationship running from economic growth to poverty. We, therefore, recommend that governments should intense efforts in reinforcement the economic growth and should pay attention on its sustainability. In addition, we found unidirectional causality between poverty and inequality. However, on the other hand, the results of this paper indicate a bidirectional causality between inequality and economic growth. Therefore, the political leaders should focus their efforts on the middle class and poorest to reduce inequality and, therefore, support the growth that can reduce poverty.