Inclusive Growth Presentation.pptx

1. Analysing the Nexus between Inclusive
Economic Growth and Institutional Quality in
the countries of the Former Soviet Union
(FSU)

2. Introduction
 Economic growth mostly used for measuring the nation’s
health of economy. Where gross domestic product is
valuable for evaluating inclusive wellbeing of a country’s
economy, though it may not be suitable measure for the
inclusive welfare of the persons.
 More or less for continuous reduction of poverty growth
level is a clear necessary condition. Outcome of strong
average growth is sharp reduction in poverty, so it is
understandable by itself growth is not an appropriate
indication. Growth never promises that every person will
take advantage alike. Rapid and continuous decline in
poverty needs inclusive economic growth that allows
individual to contribute to and benefit from economic
growth (Costanza et al., 2009; Stiglitz et al., 2010).

3. Cont…
 From ethical point of views of equity and fairness, sharing
of growth must be ensured as well as inclusive throughout
different sections of citizens and areas. Economic and
other tragedies harm the poor and the susceptible most,
and growth resulting in high inequality is objectionable.
There can be civil discontent in a country if there is
constant disparity in outcomes and right to opportunities
and violent reaction from continually underprivileged
people, can disrupt a sustainable growth process. This
may cause political turmoil and unsettle the society (Asian
Development Bank, 2011).

4. Cont…
 High Quality regulation and services, law and individual
rights are parts of broad concept that is Institutional
Quality. Institution quality has important role in inclusive
growth (li and Abiad, 2009).
 Institutions are the formal and informal rules and norms
that organize social, political and economic relations. In
Inclusive institutions there is equal right and
opportunities, entitlement, say and right to services and
resources. According to the research studies it is
concluded that more economic outcomes will progress, if
there is increase in inclusive economic institutions
(Kaufmann, 2010).

5. Cont…
 Another indicator which shows the economic performance and
welfare of the country is the high quality of their institutions. In
case of FSU countries, despite a reasonable good growth rate of
GDP per capita, countries performance have not been satisfactory
in terms of their institutional quality which leads to a decrease in
the welfare of the people consistently (Doumbia, 2018).
 The Worldwide Governance Indicators (WGI) 1996 to 2017 shows a
bleak picture of institutions in the FSU countries i.e. after
integration some of FSU countries Armenia, Georgia and Azerbaijan
have experienced civil or international conflict, some of them even
still not settled Tajikistan has also been afflicted by intense civil
war. There institutional quality are in negative digits that result as
fragile FSU institutional system (Kaufmann et al., 2010).

6. Cont…
 On 26 December, 1991 the collapse of the Soviet Union has had a
major impact on the economic transition of the former Soviet
republics toward a market economy. Immediately after declaring
their independence, the republics announced liberalization of
prices and created conditions for privatization. Under the Soviet
system, all the economies of the republics adhered to the same
principles: Production and distribution were fully controlled by the
government, no private ownership was allowed, no competition
existed, and no financial markets functioned. Domestic economies
depended largely on the pre-set and pre-planned manufacturing
and distribution of goods. The majority of the Soviet republics
developed their economies with strong emphasis on one particular
sector. Hence they tried to increase the welfare of their citizens
to fulfil the criteria of the welfare state but unequal distribution
of resources diverted them of their core objective of social
welfare (Ghedrovici & Ostapenko, 2013).

7. Cont…
 Inclusive growth plays vital role in human development
and poverty reduction. However, FSU countries after 1990
faced an increase in poverty and deterioration in human
development despite of having episodes of economic
growth. This state of affairs shows that after embracing
the system of free market economy, the economic growth
in the said countries had not been inclusive and economic
growth got precedence over economic development. One
possible reason for this non-inclusive nature of growth in
the countries of FSU is their weak institution. Strong and
stable political and economic institutions ensure all the
sections of the society and all the sectors of the economy
are included in the growth process. Advantages of the
economic growth accrue equally to all people and all
regions.

8. Cont…
 According to Human development Report (2017) in 1996 to
2017 Former Soviet Union nations faces low progress in
human development as a result their GDP per capita
increase i.e. Kyrgyzstan, Ukraine and Moldova (Samans et
al., 2017).
 Inclusive growth or welfare is a subjective concept which
will be measured through Ahluwalia Chenery welfare index
(Ahluwalia and Chenery, 1974). It measures both economic
growth and its distribution in the society. ACWI proposed
poverty weight index. Though Poverty weight index
calculate economic growth by assigning more weightage to
the lower income individuals as compared to rich income
individuals.

9. Problem Statement
 Inclusive growth is important element of government policy for
sustainable development. Initially nations preferred GDP growth as
compared to economic development because their objective was to
maximize their gross production which led them towards inclusive
growth in future (Klasen, 1991).
 Traditional economic growth benefits does not reach equally to all
sections of the society that’s why it does not contribute fairly in the
development of human indictors (Easterly, 2001).
 Just like FSU countries faces low progress in human development in
1990 to 2017 as a result their GDP per capita increase. Income
inequality has increased with the rapid economic growth i.e. 80% of
the total income is held by the upper class of society while 80% of the
society receive 20% of the total income (World Bank, 2018).

10. Cont…
 Another important factor which reduces the welfare of the society is
poverty which increases with enhancement of economic growth in
case of Former Soviet Union i.e. in 1990 to 2017, some of the soviet
union countries are below poverty line (OECD, 2007).
 Furthermore, human development index which is the combination of
health, education and standard of living indicators shows overall level
of human development in a country. In case of FSU countries, the
relation between HDI and GDP per capita seems negative i.e. Russian
Federation having 10,743$ GDP per capita but their overall human
development index (HDI) is 0.40 which is recorded as low from other
countries with respective GDP per capita income.

11. Cont…
 One possible explanation for low development despite
certain level of economic growth in case of FSU countries
might be the low institutional quality. The Worldwide
Governance Indicators (WGI) 1996 to 2017 shows a bleak
picture of institutions in the FSU countries i.e. the values
of FSU institutional quality are in negative digits that
result as fragile FSU institutional system(WGI, 2018). This
study tries to answer the question that whether variation
in the quality of institutions through time across the FSU
countries has any relationship with the non-inclusive
nature of economic growth in the said countries?

12. Significance of the Study
 When GDP increase it can contribute to improve the
inclusive welfare of poor people of society, if their
distribution is not much uneven. If distribution of income
is unequal then economic growth and institutional quality
can play important contribution to enhance the inclusive
welfare of poor people. The aim of this study is to identify
the inclusive welfare implications of Institution quality
and economic growth in FSU countries. Ahluwalia-Chenery
Welfare index (ACWI) we used as a proxy of welfare.

13. Research Question
 Whether improvement in Institutional Quality (IQ)
causes Inclusive Growth (IG) in the FSU countries?

14. Objectives of the Study
 The objective of this study are:
 To investigate the impact of Voice and Accountability on Inclusive
Growth (IG) in FSU countries over the period of 1996 to 2017.
 To analyze the impact of Political Stability and absence of
Violence/Terrorism on IG in FSU countries over the period of 1996 to
2017.
 To examine the impact of Government Effectiveness on IG in FSU
countries over the period of 1996 to 2017.
 To explore the impact of Regulatory Quality on IG in FSU countries
over the period of 1996 to 2017.
 To check the impact of Control of Corruption on IG in FSU countries
over the period of 1996 to 2017.
 To investigate the impact of Rule of Law on IG in FSU countries over
the period of 1996 to 2017.

15. Hypothesis
 Ho: Improvement in Voice and Accountability does not result in
Inclusive Growth (IG) in case of FSU countries during 1996-2017.
 Ho: Improvement in Political Stability does not result in Inclusive
Growth (IG) in case of FSU countries during 1996-2017.
 Ho: Improvement in Government Effectiveness does not result in
Inclusive Growth (IG) in case of FSU countries during 1996-2017.
 Ho: Improvement in Regulatory Quality does not result in Inclusive
Growth (IG) in case of FSU countries during 1996-2017.
 Ho: Improvement in Control of Corruption does not result in Inclusive
Growth (IG) in case of FSU countries during 1996-2017.
 Ho: Improvement in Rule of Law does not result in Inclusive Growth
(IG) in case of FSU countries during 1996-2017.

16. Literature
 Didenko et al. (2013) investigated accumulation of consumption,
physical capital and growth. The data set is on annual basis by
using time series and data collected from different primary
source from 1920 to 2010.The result shows most part of the
twentieth century FSU countries increased its human capital.
 R. Samans et al. (2017) examine inclusive growth is to generate
economic growth and development within countries and
distribute equal opportunity to overall. They used panel data for
time period between February and June 2016. Data is collected
from world economic survey and international organization
sources. The result shows that inequality is an endogenous
problem and challenge for policymakers and it should be
addressed on priority basis in order to sustain community self-
confidence.

17. Cont…
 Park and Lee (2015) argued that among other challenges inclusive
growth is long-term and strategic challenges existed in developing
Asia. One reasonably firm conclusion is that it would be a big
mistake to separate analyses of growth and income distribution.
The method they used for public spending and transfer is national
account transfer project. Data is collect from household surveys,
Acosta-Ormaechea and Yoo 2012, OECD 2013, and World Bank 2014
from 1990 to 2010. The result shows pension give more benefit to
higher-income groups as compared to lower class, females, and
poor-income class get much less benefits and results also specify
that public distribution were unevenly transfers across generation.

18. Cont…
 Kotschy and Sunde (2017) investigate that there is
important interaction between political and economic
institutions and also suggests that high quality of
institutions is not necessarily associated with democracy.
He used unbalanced panel for 96 countries for five year
period over the time period 1970 to 2010. Data collected
from SWIID, ICRG, EF and various sources. The results
propose that even in democracies high level of inequality
decline institution quality.

19. Cont…
 Kim, Wu and Lin (2018) investigated that whether there
exist nonlinear threshold effects of government size,
governance on output growth and productivity growth
channel. Data is collected from ICRG, OECD and different
database. By using PSTR technique (Panel Smooth
Transition Regression) for covering sample of 47 countries
over period 1984 to 2012. The results shows that better
governance increases government size, productivity and
output growth.

20. Model of the Study
 The focus in this study is to find out the effect of institutional
quality on inclusive growth in the former-soviet-union countries.
Inclusive welfare is measured and define in term of ACWI
(Ahluwalia and Chenery, 1974). For the measurement we use
following formula for the welfare of people of FSU countries.
Welfare = g1w1 + g2w2 + g3w3+ g4w4 + g5w5
Growth rate of income “Gi” is the ith quintile and the welfare weight
“Wi” of the ith quintile. Ahluwalia and Chenery Welfare Index (ACWI)
is further classified as Ahluwalia and chenery Poverty Weighted
Index. In Poverty weighted index 60% weightage will be allotted to
first quintile and 40% weightage will be allotted to second quintile.

21. References
 Available in synopsis (Hard copy)