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INCLUSIVE GROWTH AND POLICIES:
THE SOUTH ASIAN EXPERIENCE
Thangavel Palanivel
Chief Economist for Asia-Pacific
UNDP, New York
Growth is Inclusive When…
• It takes place in sectors in which the poor
work (e.g., agriculture)
• It occurs in relatively backward areas
• It uses the factors of production that poor
possess (e.g., unskilled labour)
• It keeps prices of food and other basics
relatively low
Message 1:
Growth is accelerating, but it is
concentrated in certain sectors and areas.
Consequently inequality has increased and
poverty reduction slowed down
South Asia’s growth is not only high, but also
accelerating over the period
GDP Growth Accelerating
10
Per capita GDP Growth
Accelerating
10
1970s
1980s
1990s
2000s
8
1970s
8
1980s
1990s
6
6
2000s
4
4
2
2
0
South Asia
0
South Asia East Asia
Africa
Latin
America
-2
East Asia
Africa
Latin
America
Despite accelerated economic growth, there is a
slowdown in poverty reduction
Annual rate of poverty reduction
slowed down in India and South
Asia
Growth elasticity of poverty declined
in India and South Asia
1.4
1981-90
East Asia
Africa
China
Change in Poverty rate
( $1.25 a day)
2
0
India
1.0
0.8
-2
0.6
-4
0.4
-6
1981-90
1990-99
-8
-10
1999-2005
1.2
(%)
South
Asia
1990-99
1999-2005
0.2
0.0
South
Asia
East
Asia
Africa
China
India
Poverty reduction performance varied across countries
and period
Conflicting picture emerges between national and
international poverty estimates
Change in Poverty incidence
(National Povertyline)
BGD
IND
NEP
PAK
SRL
CMB
CPR
INS
LAO
MAL
MON
PHI
THA
VIE
Change in Poverty Incidence
($1.25 a day)
6
1970s
1980s
1990s
2000s
6
0
-3
-6
-9
Annual change (%)
Annual change (%)
3
3
0
-3
-6
-9
-12
-12
-15
-15
1980s
1990s
2000s
• There is a huge variation in the relationship between
growth and poverty (growth elasticity of poverty)
across countries and time period
• Growth patterns and policies matter; not just growth
Growth Elasticity of Poverty
(based on national poverty line)
Growth Elasticity of Poverty
(based on $1 a day)
2.0
2.0
1.5
1980S
1970s
1980s
1.5
1990s
2000s
1.0
1.0
0.5
0.5
-0.5
0.0
BGD
IND
NEP
PAK
SRL
CMB
CPR
INS
LAO
MAL
PHI
THA
VIE
0.0
-0.5
-1.0
-1.0
-1.5
-1.5
1990S
2000S
Message 2:
Growth elasticity of poverty varies across countries
and periods due to
1. Changes in the pattern of growth affect income
distribution which in turn influence the
relationship between growth and poverty
2. Initial levels of inequality also determine the
strength of the nexus between growth and
poverty
Growth in Certain Sectors or Areas is More
Pro-Poor
Agricultural growth in China and India (1980s), industrial
growth in Malaysia and Thailand (1970s & 1980s), and services
growth in India and Brazil (2000s)
Sectoral Growth in South Asia
Sectoral GDP Growth
12
1970s
1980s
1990s
2000s
12
8
1970s
1980s
1990s
2000s
Agr
Ind
%
%
8
Bangladesh
India
Nepal
Ser
Ind
Agr
Ser
Ind
Agr
Ser
Ind
Agr
Ser
Ind
Agr
0
Ser
0
Ind
4
Agr
4
Pakistan Sri Lanka
Agr
Ind
South Asia
Ser
East Asia
Ser
Inequality in South Asian countries increased
substantially since 1990.
Inequality Level
60
In East Asia, there is a mixed
picture. Inequality declined in
Malaysia, Thailand and
Philippines, while it increased in
China, Indonesia and Vietnam.
Gini Index for South Asian Countries
50
45
40
BGD
IND
SRL
NEP
PAK
35
50
Bottom 20%
%
40
Top 20%
30
20
Bottom10%
10
Top10%
0
Gini Index East Asian Countries
50
45
40
35
30
30
25
25
20
1981 1985 1989 1993 1997 2001 2005
CPR
INS
MAL
PHI
THA
VIE
20
1981
1986
1991
1996
2001
2006
Inequalities increased in South Asia but
there is a need to distinguish between good
and bad inequalities
Horizontal inequality is also high in
South Asia
% of women own land
• South Asia’s Gini coefficients
are not high compared to other
regions, yet there are huge
social disparities in health and
education indicators
• Regional inequalities also high
• Inequality within urban areas is
higher than that of rural areas
• Women own only 7% of farms
in Asia versus 18% in Africa;
Source: UNDP
Message 3:
Employment is growing but low
labour productivity gains limit the
creation of decent employment
opportunities; almost half the
workers in South Asia are ‘working
poor’
Many countries experienced a deceleration in
employment growth
Annual Average Employment Growth
4.0
Average annual employment growth rate
4.0
1991-1999
2000-2008
1990s
3.0
%
%
3.0
2.0
2.0
1.0
1.0
0.0
0.0
ILO KILM database
ILO KILM database
2000s
Economic growth has been less “employment-intensive”
Inverse relation between employment growth and
productivity growth -hence the possibility of trade-off;
an ideal employment elasticity will be about 0.7- 0.8
Employment Elasticities
Employment Elasticity
1
1.2
0.9
1992-96
0.8
1996-00
0.7
2000-04
0.6
2004-08
1991-99
1.0
0.8
0.6
0.5
0.4
0.4
0.3
0.2
0.2
0.1
0.0
0
S Asia
SE Asia
E Asia
L
America
Africa
2000-08
Employment elasticities declined due to shift from
labour-intensive to technology and capitalintensive industries
Structure of Manufacturing Output changing towards technology-intensive
70
60
1980
2000
%
50
40
30
20
10
0
SA
EA
LA
Labour based
Source: Palanivel (2005)
SSA
SA
EA
LA
Technology based
SSA
SA
EA
LA
Resource based
SSA
Economic Reforms and Policy Environment
favour Capital & Technology Intensive Growth
• Economic reforms and transition (e.g., China)
• Incentive structure favour capital-intensive
production (e.g., tax holidays to promote FDI, cheap
credits)
• Capital deepening in the face of labour shortage
(example: Malaysia since the 1990s)
• Difficulties faced by labour intensive industries
(e.g., rigid labour laws, lack of access to credit by SMEs)
South Asia needs to accelerate labour
productivity growth
Average annual labour
productivity growth rate
%
Labour productivity level is low
in South Asia compared to other
regions, which limits the creation
of decent employment
opportunities
12
10
8
6
4
2
0
1991-00
Source: ILO
labour productivity in 2009
Annual growth of labour productivity in
South Asia is relatively high
25
20
8
1991–2000
15
2000–09
6
10
%
Thousands in 2005 PPP $
2000-08
4
5
2
0
S Asia
E Asia SE Asia
L
SS
America Africa
World
0
S Asia
E Asia
SE Asia
L
SS Africa World
America
Due to large scale underemployment and low productivity
45% of the global working poor live in South Asia.
Working Poverty Rates
Working poor rates are high in
Bangladesh, Nepal and India
compared to Pakistan and Sri
Lanka
$2.00 working poor
60
40
20
0
2005
2005
2003
2004
2007
BGD
IND
NEP
PAK
SRL
Others
Share in Total Employment
800
Million
% of total employment
Working Poor ($1.25 a day) by
Regions
600
400
200
Africa
80
Latin
America
South-East
Asia
East Asia
60
%
1000
$1.25 working poor
80
1999
2009
40
20
0
0
1999
2003
2008
2009
Source: ILO Global Employment Trends 2011
South Asia
South Asia East Asia South-East Latin
Asia
America
Africa
Source: ILO Global Employment Trends 2011
Agriculture contributes less than 20% of GDP in
South Asia, but the sector still employs around
50% of the working population
Structural Changes in Employment and Output in South Asia
100
EMP-1980S
GDP-1980S
EMP-2000S
GDP-2000S
80
%
60
40
20
0
Agri Indu Serv Agri Indu Serv Agri Indu Serv Agri Indu Serv Agri Indu Serv
BGD
IND
NEP
PAK
SRL
Message 4:
High food and fuel prices reduce
purchasing power of the poor more
severely than the rich
High food prices reduce purchasing power
of the poor more than the rich
Higher food prices decreased poor households’ purchasing
power by 24 % in Asia, while for rich households this
decline was just 4%.
Message 5:
Given the diverse impacts of growth on
poverty, it is clear that growth alone
won’t reduce poverty. Growth and propoor social policies will accelerate
poverty reduction
Coverage of Social Protection is low (%)
South Asia is moving, albeit slowly, to strengthen social
protection e.g., India’s MGNREGS; Bangladesh’s CCT for girl’s
education and Pakistan’s Benazir Income Support Programme
0
Bangladesh
Bhutan
Cambodia
China
Fiji
India
Indonesia
Lao PDR
Malaysia
Maldives
Mongolia
Nepal
Pakistan
Philippines
PNG
Sri Lanka
Viet Nam
20
40
60
80
100
Unem/under employed
Elderly
Health Care
Why does South Asia Need Stronger
Social Protection?
• Poverty & hunger are still high, share of elderly is
increasing rapidly, disintegration of family &
community networks, increased frequency of
economic shocks/natural calamities or health crises
/pandemics
• Poor have high vulnerability to risks and lack access
to instruments to mitigate and cope with them
• Current social assistance programmes are
fragmented and not well targeted
Investing More in Basic Services
• Public Spending on education and health is low in South Asia compared to
other regions
• For health services, a very high proportion of private expenditure is ‘out-ofpocket’
Health expenditure in
Public spending on education (% of GDP) 2007 (% of GDP)
1990 2008 Total Public Private
East Asia & Pacific
2.5
2.7
4.1
1.9
2.2
Latin America & Caribbean
2.8
3.9
7.1
3.4
3.7
South Asia
2.6
2.9
4.0
1.1
2.9
Sub-Saharan Africa
World
3.2
3.8
4.1
4.6
6.4
9.7
2.6
5.8
3.8
3.9
Source: World Bank
Invest more to improve Agricultural
Productivity
Government Support to
agriculture declined; level &
share of ODA to agriculture also
declined – from $8 to $3.4
billion; 18% to 3.5%
Agricultural Public Investment as % of Total Government Expenditure by
Regions
16
1980
14
1990
2002
12
10
Good rural infrastructure,
modern seeds, fertilizer,
irrigation, R & D and farmer
training are necessary for
robust agricultural productivity
& growth
8
6
4
2
0
AFRICA
ASIA
Source: UNDP
LAC
Developing countries
Conclusions
• High economic growth alone does not ensure rapid
poverty reduction.
• Sound economic and social policies help achieve
inclusive growth
– Develop human and physical assets of poor people
– Foster a inclusive financial system
– Promote growth in key sectors (agriculture and rural
development)
– Provide an effective safety net and strengthen social
protection