The President of the Arab Federation for the Digital Economy reveals the impact of income inequality on financial stability

Date: 25 - 10 - 2023


Source: albawabhnews

Al-Wafd newspaper

Prof. Dr. Ali Mohamed Al-Khouri

Dr. Ali Muhammad Al-Khoury, President of the Arab Union for the Digital Economy and Advisor to the Arab Unity Council of the Arab League, said that the relationship between social inequality, economic growth, and financial stability is complex, although economic growth is one way to enhance social support to maintain optimal levels of income equality. , which can be achieved through equitable distribution of resources.

He explained in a statement to Al Bawaba News that the relationship between income inequality, economic growth, and long-term financial stability helps achieve the goal of social integration and promoting sustainable development, and income inequality poses a real threat to the stability of the financial system, which requires effective measures to be taken to confront this challenge. Distributing wealth and opportunities more equitably in society constitutes a major challenge that must be faced to maintain the stability of the financial system through governments that must take effective measures to achieve a more equitable distribution of income, including encouraging investment in education and vocational training and stimulating economic growth. . It is also necessary to tighten oversight of the financial sector and implement policies that reduce unjustified financial costs and enhance transparency.
Causes of income inequality.

He stressed that there are many explanations for the causes of income disparity. There are those who believe that globalization and technological progress have contributed to exacerbating the problem, given that the added value of creativity and specialized skills is much higher than that resulting from skilled labor. Others say that this is a result of the liberal capitalism approach that favors It is always for the richer than other groups, in addition to other factors related to the educational and financial level, places of residence, and the surrounding social environment, all of which lead to marginalization and exclusion from community participation, especially in closed societies.
The relationship between equality and economic growth.

He continued: It is necessary to consider the level of financial development when evaluating the impact of income inequality on economic growth, which can lead to economic growth in the short and medium term in countries with low development of financial markets, but it quickly disappears in the long term, and therefore we find that The level of financial development of a country plays a crucial role in determining the negative impact of income inequality on economic growth, and countries with high levels of financial development are more likely to experience negative effects of income inequality on economic growth. In contrast, countries with lower levels of financial development are less likely to experience the negative effects of income inequality.

Strategy to reduce inequality

He pointed out that economic growth and reducing inequality in income distribution is one of the most important economic goals of the world’s countries, especially developing countries. Countries of the world, including Arab countries, have sought to set central goals in their vision for sustainable development, and to develop visions to reduce the negative effects of income inequality on economic growth. It requires redistribution of income to reduce the disparity between the rich and poor classes, and to ensure that it does not affect economic growth. Optimal tax rates must be adhered to, and credit policies must be followed that contribute to distributing local credit to the private sector over a large number of projects, with a focus on small projects by providing the necessary loans at a rate Distinct interest rates and longer loan repayment periods, accompanied by incentives and privileges for projects in which small investors contribute, to reduce the impact of income disparity. Equality in the fair distribution of income is also one of the main issues that affects the stability of the financial system of any economy.