Dhaka ESCAP workshop Presentation
INCLUSIVE GROWTH AND POLICIES: THE 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: Rapid growth in Asia has been accompanied by significant reduction in poverty as well as significant increase in income inequality. Asia experience, therefore, is not a story of the “rich getting richer and the poor getting poorer.” Rather it is the rich getting richer faster than the poor. In the context, Asia growth has not been sufficiently “inclusive”
• Growth in Asia has been not only high, but also accelerated over the period • Income inequality widened in the same period Changes in Gini Coefficients between early 1990s and 2005-08
Per capita GDP Growth Accelerating 10
Sri Lanka China Cambodia Indonesia India Nepal Bangladesh Mongolia Lao PDR Vietnam Pakistan Philippines Thailand Malaysia
1970s
8
1980s 6
1990s 2000s
4 2 0 -2 South Asia
East Asia
Africa
Latin America
-10
-5
0
5
10
• Rate of poverty reduction has been high in Asia; while it has accelerated in East Asia over the period, it has slowed-down in South Asia • Growth impact of poverty has been low and declining in South Asia Annual rate of poverty reduction slowed down in India and South Asia
Change in Poverty rate ( $1.25 a day)
South Asia
East Asia
Africa
China
India
Relationship between growth and poverty 2
2
1
0
0
-2
-1 -2
-4
-3 -6 -8
1981-90 1990-99 1999-2005
-10
-4
1981-90
1990-99
1999-05
-5 EAP
SA
LAC
SSA
Total
Message 2: Growth in Asia has been ‘less-inclusive’ because 1. Growth has been uneven across sectors and locations 2. Demand for skilled and unskilled labour also uneven 3. Growth has been driven by capital-intensive sectors 4. Income of the poor eroded much more severely than the rich due to high food and fuel prices 5. High disparities in assets and access to infrastructure impede the poor from fully participating in the growth process
The rate of growth of productivity has been higher in Asia compared to other regions; it has also accelerated Despite this, level of labour productivity is still low in Asia compared to the world average, which limits the creation of decent employment opportunities
8 1991–2000
%
6 4 2 0
2000–09
labour productivity is low in Asia in 2009 Thousands in 2005 PPP $
Annual growth of labour productivity in Asia is relatively high
25 20 15 10 5 0
45% of the global working poor live in South Asia due to large scale underemployment and low productivity Within South Asia, working poor rates are high in Bangladesh, Nepal and India Working Poverty Rates Working Poor ($1.25 a day) by Regions
$1.25 working poor
1000
80
Million
Africa
600
Latin America
400
South-East Asia
200
East Asia
0 1999
2003
2008
2009
Source: ILO Global Employment Trends 2011
South Asia
% of total employment
Others
800
$2.00 working poor
60
40
20
0
2005
2005
2003
2004
2007
BGD
IND
NEP
PAK
SRL
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%.
High inequalities in assets impede the poor from fully benefitting in the growth process Land holding and other assets including financial assets are highly concentrated in several Asian countries
Wealth Gini
Inequality in Distribution of Land Holdings (Gini)
80
75
60
60 45
40
30
20
15
Brazil
Mexico
Veitnam
Bangladesh
Pakistan
Thailand
Indonesia
Korea
India
China
Veitnam
Thailand
Sri Lanka
Phillipines
Pakistan
Nepal
Malaysia
Lao PDR
Korea
Indoneasia
India
China
Bangladesh
Source: ADB
Japan
0
0
High inequalities in educational attainment hinder the poor from fully participating in the growth process
Bottom Quintile 60
Rich Quintile
75
Bottom Quintile
60
Rich Quintile
45
40
30
20
15
Source: World Bank
Veitnam
Phillipines
Indonesia
Cambodia
Pakistan
Nepal
0 India
Veitnam
Phillipines
Indonesia
Cambodia
Pakistan
Nepal
India
Bangladesh
0
Bangladesh
80
Percentage of Children aged 1519 years who have completed 10 Grade
Percentage of children aged 1519 who have never attended school
High gender inequalities limit women from fully participating in the growth process % of women own land
• Women’s labour force participation rate is low: 33 % in South and Southeast Asia compared to 77 % of men • Women earn only 34 percent of men’s wages in South Asia
Source: UNDP
• Women own only 7% of farms in Asia versus 18% in Africa;
Message 3: Public policies have also not been “sufficiently inclusive” Since the poor lack both human and financial capital, public policies that help poor to build their human capital, better manage their risks, and improve the access to credit are key for making growth more inclusive
Investing More in Basic Services • Public Spending on education and health is low in Asia compared to other regions • For health services, a very high proportion of private expenditure is ‘out-of-pocket’ 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 Governments support to agriculture declined
Agricultural Public Investment as % of Total Government Expenditure by Regions 16
Level & share of ODA to agriculture also declined – from $8 to $3.4 billion; 18% to 3.5%
1980
14
1990
2002
12 10 8
Good rural infrastructure, modern seeds, fertilizer, irrigation, R & D and farmer training are necessary for robust agricultural productivity & sustainable growth
6 4 2 0 AFRICA
ASIA
Source: UNDP
LAC
Developing countries
Existing Social Protection Programmes are Not Sufficient to protect the poor from risks in Asia • Current social assistance programmes are fragmented and not well targeted • Coverage in A-P is low compared to Latin America and Eastern Europe • Most of the programmes do not take risks into account
Coverage of Social Protection is low 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
Access to formal financial services is low in Asia compared to other regions
The share of the people who have access to basic formal financial services in Asia is relatively less (24 % in South Asia and 39 % in east Asia) compared to that of Central Asia and Eastern Europe (42%), Latin America and Caribbean (45%), and OECD (84%).
Key Areas for Policy Interventions • Improve poor’s access to basic health care and basic education through increasing public spending as well as ensuring quality of social services • Expand income earning opportunities for the poor by increasing employment opportunities and improving productivity of farm and non-farm activities • Strengthen social protection systems to reduce risks associated with economic shocks/natural calamities • Fostering rural non-farm and SME activities would create employment opportunities for unskilled labourers
Many countries are moving in the right direction • The focus of recent development plans/strategies is on “inclusive growth” (e.g., 11th Five-Year Plans of India and China). • Conditional cash transfers in countries such as Bangladesh, Cambodia, Indonesia, and Philippines are designed to reduce disparity in gender, education and health indicators • India’s “National Rural Employment Guarantee Scheme”, China’s “Minimum Livelihood Guarantee Scheme,”, and Thailand’s “Universal Health Insurance Scheme” are good examples of social protection schemes designed to help the poorest and most vulnerable. • Recently many countries are increasing resource allocation into agriculture and rural development
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: Rapid growth in Asia has been accompanied by significant reduction in poverty as well as significant increase in income inequality. Asia experience, therefore, is not a story of the “rich getting richer and the poor getting poorer.” Rather it is the rich getting richer faster than the poor. In the context, Asia growth has not been sufficiently “inclusive”
• Growth in Asia has been not only high, but also accelerated over the period • Income inequality widened in the same period Changes in Gini Coefficients between early 1990s and 2005-08
Per capita GDP Growth Accelerating 10
Sri Lanka China Cambodia Indonesia India Nepal Bangladesh Mongolia Lao PDR Vietnam Pakistan Philippines Thailand Malaysia
1970s
8
1980s 6
1990s 2000s
4 2 0 -2 South Asia
East Asia
Africa
Latin America
-10
-5
0
5
10
• Rate of poverty reduction has been high in Asia; while it has accelerated in East Asia over the period, it has slowed-down in South Asia • Growth impact of poverty has been low and declining in South Asia Annual rate of poverty reduction slowed down in India and South Asia
Change in Poverty rate ( $1.25 a day)
South Asia
East Asia
Africa
China
India
Relationship between growth and poverty 2
2
1
0
0
-2
-1 -2
-4
-3 -6 -8
1981-90 1990-99 1999-2005
-10
-4
1981-90
1990-99
1999-05
-5 EAP
SA
LAC
SSA
Total
Message 2: Growth in Asia has been ‘less-inclusive’ because 1. Growth has been uneven across sectors and locations 2. Demand for skilled and unskilled labour also uneven 3. Growth has been driven by capital-intensive sectors 4. Income of the poor eroded much more severely than the rich due to high food and fuel prices 5. High disparities in assets and access to infrastructure impede the poor from fully participating in the growth process
The rate of growth of productivity has been higher in Asia compared to other regions; it has also accelerated Despite this, level of labour productivity is still low in Asia compared to the world average, which limits the creation of decent employment opportunities
8 1991–2000
%
6 4 2 0
2000–09
labour productivity is low in Asia in 2009 Thousands in 2005 PPP $
Annual growth of labour productivity in Asia is relatively high
25 20 15 10 5 0
45% of the global working poor live in South Asia due to large scale underemployment and low productivity Within South Asia, working poor rates are high in Bangladesh, Nepal and India Working Poverty Rates Working Poor ($1.25 a day) by Regions
$1.25 working poor
1000
80
Million
Africa
600
Latin America
400
South-East Asia
200
East Asia
0 1999
2003
2008
2009
Source: ILO Global Employment Trends 2011
South Asia
% of total employment
Others
800
$2.00 working poor
60
40
20
0
2005
2005
2003
2004
2007
BGD
IND
NEP
PAK
SRL
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%.
High inequalities in assets impede the poor from fully benefitting in the growth process Land holding and other assets including financial assets are highly concentrated in several Asian countries
Wealth Gini
Inequality in Distribution of Land Holdings (Gini)
80
75
60
60 45
40
30
20
15
Brazil
Mexico
Veitnam
Bangladesh
Pakistan
Thailand
Indonesia
Korea
India
China
Veitnam
Thailand
Sri Lanka
Phillipines
Pakistan
Nepal
Malaysia
Lao PDR
Korea
Indoneasia
India
China
Bangladesh
Source: ADB
Japan
0
0
High inequalities in educational attainment hinder the poor from fully participating in the growth process
Bottom Quintile 60
Rich Quintile
75
Bottom Quintile
60
Rich Quintile
45
40
30
20
15
Source: World Bank
Veitnam
Phillipines
Indonesia
Cambodia
Pakistan
Nepal
0 India
Veitnam
Phillipines
Indonesia
Cambodia
Pakistan
Nepal
India
Bangladesh
0
Bangladesh
80
Percentage of Children aged 1519 years who have completed 10 Grade
Percentage of children aged 1519 who have never attended school
High gender inequalities limit women from fully participating in the growth process % of women own land
• Women’s labour force participation rate is low: 33 % in South and Southeast Asia compared to 77 % of men • Women earn only 34 percent of men’s wages in South Asia
Source: UNDP
• Women own only 7% of farms in Asia versus 18% in Africa;
Message 3: Public policies have also not been “sufficiently inclusive” Since the poor lack both human and financial capital, public policies that help poor to build their human capital, better manage their risks, and improve the access to credit are key for making growth more inclusive
Investing More in Basic Services • Public Spending on education and health is low in Asia compared to other regions • For health services, a very high proportion of private expenditure is ‘out-of-pocket’ 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 Governments support to agriculture declined
Agricultural Public Investment as % of Total Government Expenditure by Regions 16
Level & share of ODA to agriculture also declined – from $8 to $3.4 billion; 18% to 3.5%
1980
14
1990
2002
12 10 8
Good rural infrastructure, modern seeds, fertilizer, irrigation, R & D and farmer training are necessary for robust agricultural productivity & sustainable growth
6 4 2 0 AFRICA
ASIA
Source: UNDP
LAC
Developing countries
Existing Social Protection Programmes are Not Sufficient to protect the poor from risks in Asia • Current social assistance programmes are fragmented and not well targeted • Coverage in A-P is low compared to Latin America and Eastern Europe • Most of the programmes do not take risks into account
Coverage of Social Protection is low 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
Access to formal financial services is low in Asia compared to other regions
The share of the people who have access to basic formal financial services in Asia is relatively less (24 % in South Asia and 39 % in east Asia) compared to that of Central Asia and Eastern Europe (42%), Latin America and Caribbean (45%), and OECD (84%).
Key Areas for Policy Interventions • Improve poor’s access to basic health care and basic education through increasing public spending as well as ensuring quality of social services • Expand income earning opportunities for the poor by increasing employment opportunities and improving productivity of farm and non-farm activities • Strengthen social protection systems to reduce risks associated with economic shocks/natural calamities • Fostering rural non-farm and SME activities would create employment opportunities for unskilled labourers
Many countries are moving in the right direction • The focus of recent development plans/strategies is on “inclusive growth” (e.g., 11th Five-Year Plans of India and China). • Conditional cash transfers in countries such as Bangladesh, Cambodia, Indonesia, and Philippines are designed to reduce disparity in gender, education and health indicators • India’s “National Rural Employment Guarantee Scheme”, China’s “Minimum Livelihood Guarantee Scheme,”, and Thailand’s “Universal Health Insurance Scheme” are good examples of social protection schemes designed to help the poorest and most vulnerable. • Recently many countries are increasing resource allocation into agriculture and rural development
