Development of Social Welfare Policies in the South Asian Association for Regional Cooperation (SAARC) Countries: Globalization and Democracy

The study extends the debate on social spending in the developing world by taking the South Asian Association for Regional Cooperation (SAARC) countries to examine the social policy reactions of democratic and non-democratic regimes to globalization which is one of the main social challenges of sustainable development. This article investigates the impact of globalization and democracy on the aggregate and disaggregates levels of social spending for the selected SAARC countries from the period 1996-2018. The investigation includes how governments react to the challenges of globalization with the welfare policy decisions that are located more toward reducing cost (efficiency theory) otherwise ensuring individuals' government assistance (compensation theory). The results support both the efficiency and compensation thesis depending on which type of globalization indicator is taken under consideration, however, it would be misleading to assume that the efficiency thesis is valid for all developing countries. By using the TSCS data technique on SAARC countries we discovered the impact of globalization on social spending that was supposed to be conditional on regime type. However, the interactive variables reveal an important finding that trade openness tends to increase social spending (the coefficient indicates little systematic effect), and financial openness tends to cut social spending, while democracy of SAARC countries has no significant role or unrelated in counterbalancing these effects. Hence, social spending cannot automatically develop human capital through democratic regime, further SAARC governments are usually in fiscal insolvency that results in allocating most of the resources from budget on debt repayments, leaving a small portion for social-related expenditures.

Automated summary

This study expands the discussion on social spending in developing countries by examining the social policy reactions of democratic and non-democratic regimes in SAARC countries to globalization. The results show support for both efficiency and compensation theories, depending on the type of globalization indicator considered. However, it is not accurate to assume that the efficiency thesis applies to all developing countries. The analysis of SAARC countries using TSCS data technique reveals that trade openness tends to increase social spending, while financial openness tends to reduce it, and the role of democracy in counterbalancing these effects is not significant.