IED's Hyun Son was invited to deliver a lecture on inclusive growth at the Stephen Zuelling Graduate School of the Asian Institute of Management. Her lecture dealt with issues on measurement and operationalization of inclusive growth for Asia and the Pacific. Dean moderated the lecture, which was attended by around 50 participants

1. Inclusive Growth in Asia:
Trends and Issues
Hyun H. Son
Independent Evaluation Department
Asian Development Bank

2. No agreed, single definition of inclusive growth.
Inclusive growth is a multidimensional concept.
Inclusive growth requires: (i) sustained economic growth; (ii)
poverty reduction; (iii) inequality reduction; and (iv)
broadening access to opportunities.
These four are not independent of each other.
These social objectives are means to achieving social well-
being defined by Sen in terms of functioning and capabilities.
What is Inclusive Growth?

3. 1990s
(1990-1999)
2000s
(2000-2010)
Population 1.20 0.97
Gross Domestic Product 9.03 8.19
Per capita Gross Domestic Product 7.83 7.22
Household consumption 5.72 5.54
Per capita household consumption 4.52 4.57
Sustained Economic Growth
– Growth needs to be sustained to help increase the average
standard of living through greater income and consumption
Table: Annual growth rates of selected indicators in Asia
Source: Author’s calculations.

4. The inclusiveness of growth depends on
whether growth is accompanied by poverty
reduction.
Asia has made remarkable progress in
reducing its absolute poverty but is still home
to the largest number of people living in
absolute poverty.
However, Asia’s progress has been less
impressive for poverty based on $2-a-day
poverty line.
Poverty in Asia

5. 1990s
(1990-1999)
2000s
(2000-2010)
$1.25-a-day poverty line
% of poor 42.96 23.50
Number of poor (billion) 1.23 0.79
Poverty gap 13.92 5.83
Severity of poverty 6.19 2.06
$2-a-day poverty line
% of poor 69.66 48.27
Number of poor (billion) 2.00 1.62
Poverty gap 30.04 17.12
Severity of poverty 16.12 7.88
Table: Average poverty estimates in Asia
Source: Author’s calculations

6. Inclusive growth should be concerned with the
effectiveness of growth in reducing poverty.
The degree of its effectiveness may be
measured by the growth elasticity of poverty –
defined as the ratio of rate of poverty reduction
to growth rate of GDP.
How Effective Is Economic
Growth in Reducing Poverty?

7. 1990s
(1990-1999)
2000s
(2000-2010)
$1.25-a-day poverty line
% of poor -0.82 -1.37
Number of poor -0.68 -1.25
Poverty gap -0.96 -1.51
Severity of poverty -1.04 -1.54
$2-a-day poverty line
% of poor -0.46 -1.02
Number of poor -0.32 -0.90
Poverty gap -0.70 -1.26
Severity of poverty -0.83 -1.37
Table: Growth Elasticity of Poverty
Source: Author’s calculations

8. Table: Decomposition of the Growth Effectiveness of
Poverty Reduction in the Philippines in 2006-09 (%)
Growth effect
Population
effect
Consumption
elasticityeffect
Inequality
effect
$1.25-a-day povertyline
Absolute poor -2.13 0.94 0.34 -0.92
Poverty gap of
absolute poor -3.51 1.55 0.57 -1.94
Severity of
absolute poverty -4.80 2.12 0.77 -2.87
$2-a-day povertyline
Poor -1.21 0.53 0.19 -0.24
Poverty gap of
poor -1.90 0.84 0.31 -0.75
Severity of
poverty -2.51 1.11 0.40 -1.21
Source: Author’s calculations

9. Inclusive growth needs to be broad-based,
reaching as many segments of the population
as possible while protecting the vulnerable and
poor.
Inequality-reducing growth ensures that
benefits of economic growth are more equitably
shared among the population.
Trends in Inequality

10. 1990s
(1990-1999)
2000s
(2000-2010)
1990-2010
Gini index 1.22* 0.44 1.04*
Atkinson index 2.04* 0.73 1.84*
Quintile index 1.03* 0.37* 0.62*
Table: Annual growth rates of inequality in Asia,
weighted by population
Source: Author’s calculations
* With a significant increase or decrease in inequality at the 5% level of significance.

11.  The concept of inequality is now being extended to
cover many other dimensions of living standard such
as inequality in outcomes in health, education,
employment, etc.
 Governments usually provide opportunities in health,
education, basic infrastructure, etc., but not all
citizens can avail of these opportunities.
 It is useful to understand the inequality of
opportunities prior to designing policies aimed at
universal provision of these basic services.
 In some Asian countries, inequality of opportunity
remains a challenge as seen in unequal access to
basic services including education, safe water and
sanitation, and electricity.
Inequality of Opportunity in Asia

12.  Inequality of opportunity arises from disparities due
to circumstance variables, or factors over which an
individual has no control (i.e. gender, race,
ethnicity).
 In Asia, circumstance variables including
household expenditure and location of residence in
rural or urban areas were found to be crucial in
influencing access to education and basic
infrastructure.
Inequality of Opportunity in Asia

13. Inequality of opportunity in Asia remains a
challenge in promoting inclusive growth in the
region. How can inequality of opportunity in Asia
be addressed?
Bolster the demand side of the provision of
education and basic infrastructure – e.g., CCT
Compensate for the lack of demand and incentive
to provide basic infrastructure services in rural
areas – e.g., subsidies to rural communities
Decentralize to improve the delivery of basic
services
Inequality of Opportunity in Asia

14.  Policies for Promoting Growth with Jobs
To facilitate the process of structural transformation to
transfer from large amounts of rural, agriculture surplus
of labor to urban, manufacturing and service sectors,
where most of the future’s productive jobs will be
generated.
Public employment schemes to address unemployment
and underemployment (e.g., public works programs,
India’s Rural Employment Guarantee Scheme)
Promoting skills development through e.g. support for
technical and vocational education
Policy Responses toward
Inclusive Growth

15.  Fiscal Policies
 Greater and better spending on health and education to promote
coverage and equity in access to these basic social services
 Health spending (% of GDP): less than 5% (Asia) vs. 9.4% (OECD) in 2009
 Education spending (% of GDP): less than 4% (Asia) vs. 5.3% (OECD) in
2010
 Fiscal transfers to impoverished areas
 To help narrow the urban-rural divide, improve transportation and
communication networks.
 Greater and equitable revenue mobilization: direct vs. indirect tax
Policy Responses toward
Inclusive Growth

16.  Social Protection Policies
focused on skills and capabilities rather than on
compensating taxes and transfers
covering appropriate pension and safety net schemes
to assist marginalized groups such as elderly or
disabled
Needs to be well targeted to minimize leakage
Policy Responses toward
Inclusive Growth

17. Thank you!