Modelling Two Dimensions of Poverty in Selected Developing Countries: The Impact of Fossil Fuel Subsidies

Poverty has remained one of the key challenges facing humanity, especially in developing countries. In a bid to deepen our understanding of poverty, numerous attempts have been made in the literature to examine the determinants of poverty with several variables introduced in the estimation process. However, the role of fossil fuel subsidies has not been adequately examined in the literature. Recently, fossil fuel subsidies have risen in developing countries and one of the justifications of such an increase is that it leads to poverty reduction. The purpose of this study is to examine the factors affecting both income and health poverty with a special focus on the role of fossil fuel subsidies in 30 developing countries. Using a generalized method of moments technique, it is shown that an increase in fossil fuel subsidies generates more income poverty and health poverty. Qualitatively, the same results are obtained using the common correlated effects mean group approach, the augmented mean group method and a recently introduced causality test. The results further indicate that increases in real GDP per capita, financial development, human capital development, real remittances per capita, globalisation and institutional quality reduce both income poverty and health poverty. The implications of these empirical results are analysed in the paper.