Growth Without Equity: Evidence of Non- Inclusive Economic Growth in the Balkans

In the context of ever-evolving economic insecurities that threaten the global economic well-being, and focusing on the implications for the Balkans, this paper aims to investigate the relationship between economic growth and poverty in this region. The paper covers the period from 2006 to 2021 for the following countries: Albania, Bulgaria, Greece, Croatia, North Macedonia, Montenegro, Romania, Serbia, Slovenia, and Kosovo. The research explores whether economic growth in the region has been inclusive by estimating bidirectional panel regression models. The results of the model show that GDP growth is associated with a rising income share of the poorest 20%. On the other hand, in the control model, when the variables’ position is swapped, the income share of the poorest 20% seems to be associated with rising economic growth. To test the directional predictive power, the Granger test was introduced. The results from the Granger causality test show that the trend in economic growth truly predicts the trend of the income share of the poorest 20%. In contrast, the income share of the poorest does not Granger-cause GDP growth, suggesting that the relationship is unidirectional. The positive and statistically significant coefficient suggests that GDP growth does impact improving the income share of the poorest 20%, but the low value of the coefficient shows that this effect is relatively modest in magnitude. This means that growth alone contributes to inclusion, but not strongly or quickly enough to ensure equity. The observed relationship supports the idea of non-inclusive growth, where benefits do not automatically trickle down to the poorest.