inclusive growth in asia and the pacific findings of the escap survey 2015 oecd/escap/adb regional...
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Inclusive growth in Asia and the Pacific
Findings of the ESCAP Survey 2015
OECD/ESCAP/ADB REGIONAL CONSULTATIONInclusive Growth in Southeast Asia
Oliver PaddisonUnited Nations Economic and Social Commission for Asia
and the Pacific
2
Has growth been inclusive?
• Inclusiveness is typically measured using income-related indicators.
Country Growth of absolute poverty (1990-2013)
Growth real pc income (1990-2013)
Change in Gini (1990-2013)
Azerbaijan -97.4% 95% -1.3
Bangladesh -38.4% 132% 4.5Cambodia -58.2% 193% -2.3China -80.4% 642% 9.6India -33.8% 189% 3.1Indonesia -70.1% 115% 9.0Kazakhstan -97.4% 77% -3.6Malaysia -100.0% 122% -1.4Pakistan -67.5% 54% -3.2Philippines -40.0% 58% -0.8Russian Federation -100.0% 22% -8.3Sri Lanka -72.6% 182% 3.9Thailand -96.7% 119% -5.9Turkey -36.2% 74% -1.5
Realizing inclusive growth
• Inclusiveness is a multidimensional concept.
• It should capture social and environment dimensions of development (Rio+20).
• Inclusiveness is broadly defined in terms of: (a) increasing the average standard of living of the
population; (b) reducing income inequality; (c) reducing levels of extreme poverty; and (d) expanding and broadening equality in opportunities (social and environment related).
3
Methodology
• Create composite indices for economic, social and environmental inclusiveness.
– Select relevant indicators per index (5), using only outcome indicators.
– Compute average for relevant time period (1990s and 2000-2012) and linearly re-scale in interval [0,1], with one indicating best score in Asia-Pacific region.
– Compute arithmetic averages of indicators per index, assigning equal weights.
4
Economic inclusivenessMeasured by:
1.Rate of poverty at $1.25 per day in 2005 PPP
2.Income inequality: Gini coefficient
3.Ratio of incomes of the highest quintile to the incomes of the lowest quintile;
4.Unemployment rate; and
5.Ratio of the female-to-male labour-force participation rate.
Significant differences in poverty rates between urban and rural sectors.
Income inequality has increased in many countries.
Lack of productive employment employment
China India Indonesia0
5
10
15
20
25
30
35
40
Rural Urban
Po
vert
y h
ead
cou
nt
rati
o,
in p
erce
nta
ge
of
po
pu
lati
on
5
6
Economic inclusiveness
Social inclusiveness
Aze
rbai
jan
Ban
glad
esh
Cam
bodi
a
Indi
a
Indo
nesi
a
Nep
al
Pak
ista
n
Vie
t N
am
0
10
20
30
40
50
60
70
80
90
100
Secondary school attendance
Males Urban Males Rural Females Urban Females Rural
Per
cent
age
Measured by:1. Gender parity at the secondary
school level; 2. Gross secondary school
enrolment; 3. Average years of schooling; 4. Percentage of live births attended
by skilled health staff; and5. Mortality rate of children under
age 5
Significant progress has been made.
Yet, large disparities in education and health remain within countries.
7
Social inclusiveness
8
Environmental inclusiveness
Measured by:
1. Access to improved sanitation
2. Access to water sources;
3. Annual change in total greenhouse gas (GHG) emissions
4. Annual change in forest area;
5. Annual change in share of fossil-fuel energy consumption in total consumption of energy.
The poor are particularly affected by environmental degradation.
Environmental degradation can also be an outcome of economic inequality.
9
DPRK
Cambodia
Myanmar
Bangladesh
Philippines
Pakistan
Indonesia
Lao PDR
Nepal
Mongolia
Sri Lanka
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%
Access to electricity, 2012
Rural electrification rate (%) Urban electrification rate (%)
Environmental inclusiveness
10
11
ESCAP Inclusiveness Index
Policy recommendations
1. Address the neglect of the rural sector.• Increase agricultural productivity by focusing on quality and standards,
investments in R&D.• Develop non-farm sector through rural industrialization.
2. Strengthen financial development, foster financial inclusion.
3. Foster creation of small and medium-sized enterprises.
4. Make existing expenditure more development-oriented: • Reduce non-development expenditure (defence, energy subsidies).• Increase access to and the affordability of health systems.• Strengthen social protection programmes.• Expand investment in education.
12
Thank You!
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economic-and-social-survey-asia-pacific
13
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14
Has growth been inclusive?
• Inclusiveness is typically measured using income-related indicators.
Country Growth of absolute poverty (1990-2013)
Growth real pc income (1990-2013)
Change in Gini (1990-2013)
Rank of inclusiveness
Azerbaijan -97.4% 95% -1.3
Bangladesh -38.4% 132% 4.5 12=>12
Cambodia -58.2% 193% -2.3 14=>15
China -80.4% 642% 9.6 10=>7
India -33.8% 189% 3.1 13=>14
Indonesia -70.1% 115% 9.0 11=>11
Kazakhstan -97.4% 77% -3.6 1=>1
Malaysia -100.0% 122% -1.4 4=>4
Pakistan -67.5% 54% -3.2 16=>16
Philippines -40.0% 58% -0.8 7=>10
Russian Federation
-100.0% 22% -8.3 2=>2
Sri Lanka -72.6% 182% 3.9 6=>5
Thailand -96.7% 119% -5.9 3=>3
Turkey -36.2% 74% -1.5
THE OECD INCLUSIVE GROWTH
FRAMEWORK
Paul SchreyerDeputy Director OECD Statistics Directorate
OECD/ESCAP/ADB Regional Consultation on Inclusive Growth in Southeast Asia
Bangkok, 9 June 2015
Ensure that growth goes hand-in hand with improvements in people’s living conditions
Policies need to target multiple objectives simultaneously, not just GDP
Need new metrics • Aspects beyond income• Distribution
Need to revisit our models • Integrate multidimensionality and interactions
The issue
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• A 3-pronged approach:
– Which growth? -> Multidimensional
– Whose growth? -> Distributions
– What drivers? -> Policy relevance
Defining Inclusive Growth
Housing Income
Work-Life Balance Jobs
Education and skills
Social Connections Health
Civil Engagement and Governance
Environmental Quality
Personal Security
Subjective Well-being
Which growth? OECD How’s Life? framework
• Measuring evolution of income, health, employment of particular parts of the population:
• Median households• Bottom 10%
• Being able to assess the net effect of policies on these variables
• Drawing conclusions for governance, institutions and policy design
19
Whose growth?
• For assessment of net effects of policies, we need common units
• Translate changes in health or jobs into income equivalents
• Econometric techniques, well-researched
• Life assessment = f(income, health, jobs)
• Valuation in money terms1 year of life expectancy = 5% of income
1 point of unemployment = 2% of income
• Weights are conservative and standard and representative of peoples (implicit) preferences
• Measure of multi-dimensional living standards 20
How do we measure?
Note: OECD calculations based on OECD National Accounts, Health and Income Distribution databases.
Average growth in MLS 1995 and 2012IT
A
PRT
USA
AUT
DNK
DEU
NLD BE
L
SWE
FRA
CZE
CAN
HUN
NZL
AUS
NO
R
FIN
CHN
rur
CHN
urb
CHN
-2
0
2
4
6
8
10
Inequality Unemployment Longevity Income Inclusive growth Economic growth
Average OECD MLS
%
USA – AUS: similar GDP/cap and real HH income growthBut unemployment declines in AUS, life expectancy rises and inequality effects are small Growth in living standards AUS>USA
Time profiles of MDLS
$, PPP adjusted
Note: OECD calculations based on OECD National Accounts, Health and Income Distribution databases.
… and 2012 MLS levels
CHN
rur
CHN
MEX CH
L
HUN
CHN
urb EST
SVK
POL
GRC
PRT
CZE
ESP
SVN
KOR IRL
ITA
NZL
DNK
FIN
GBR
JPN
BEL
NLD FRA
USA
SWE
DEU
CAN
AUT
AUS
CHE
NO
R
LUX
-25000
-15000
-5000
5000
15000
25000
35000
Inequality Unemployment Longevity Income Living standards
Living standard of the median household (OECD average)
USD per capitaUSA higher income levels than AUSBut overcompensated by differences in LE and inequality
Quantifying policy transmission: example GDP and household income
Long experience about policy effects on GDP per capita
But much less on HH income
GDP growth has trickled down less since the mid-1980s.
The gap may reflect differential impact of pro-growth policies on household disposable incomes
Different effects for different social groups along the distribution of income.
Gains in GDP have not fully trickled down to household incomes
(on average since the mid-1980s)
The elasticity of household disposable income to GDP per capita has been even lower at the bottom end of the distribution pointing to growing inequality.
0.5
0.55
0.6
0.65
0.7
0.75
0.8
0.85
0.9
0.95
1
-12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12
Bottom to top-sensitive income standards
A. Household disposable incomes elasticities to GDP
Average income
Source: Causa, de Serres and Ruiz (2014)
Reforms can have a differential impact on wage dispersion and employment
Effect of change on: A pro-growth change in:
Wage dispersion Employment Overall earnings
inequality
Innovation and Technology
Technical progress (Higher MFP) + = +
Higher R&D intensity + = +
Globalisation
Deeper trade integration = = =
Higher FDI openness = = =
Education / Human capital
Higher share of skilled workers - + -
Product market competition
Lowering regulatory barriers to entry
+ + =
Source: Going for Growth 2015, Chapter 2
Work ahead
• Further quantifying policy effects on health and jobs and computing net effects
• Health and Unemployment inequalities: monetisation allows combining with income inequalities
• Adding education -> ‘welfare return to education’ as opposed to income return to education
27
ADB Approach to Inclusive Growth
Juzhong ZhuangDeputy Chief Economist
Economic Research and Regional Cooperation DepartmentAsian Development Bank
29
Presentation at OECD/ESCAP/ADB Regional Consultation on Inclusive Growth in Southeast Asia, Bangkok9 June 2015
Asia’s high growth has led to large reductions in poverty …
Developing Asia Sub-Saharan Africa Latin America and Caribbean
Middle East and North Africa
0
5
10
15
20
25
30
35
7.03.7 3.4 2.4
32.4
9.75.7
1.5
GDP growth and poverty reduction
Annual GDP growth (1990-2010), %Cumulative reduction in poverty rate (1990s-2000s), percentage point
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…but has been accompanied by rising inequality in many countries
31
Singapore
PRC
India
Mongolia
Taipei,China
Tajikistan
0 5 10 15 20 25 30 35 40 45 50
44.2
37.1
32.4
29.2
32.5
30.4
33.2
32.5
31.2
27.6
29.0
24.5
46.3
42.1
42.1
38.9
37.0
36.7
36.5
36.4
33.8
32.1
30.8
28.9
Gini Coefficients, Selected Economies, 1990s and 2000s
2000s 1990s
Why does inequality matter?• Rising inequality slows down the pace of poverty reduction
– If inequality had been stable, additional 240 million Asians (6.5% of Asia’s population) would have been lifted out of poverty
• Inequality can weaken the basis of growth by affecting human capital, social cohesion, middle class, and quality of governance
– Empirical studies show lower inequality is associated with longer growth duration. A 10-percentile decrease in inequality increases the expected length of a growth spell by 50% (IMF 2011)
32
Why has inequality risen?• Technological progress, globalization, and market-
oriented reform have led to rapid growth in Asia, but working together they have favored:– capital over labor– skilled over unskilled workers– cities/coastal regions over rural/inland areas.
• These have been compounded by unequal access to opportunity due to social exclusion.
• Rising income inequality increases wealth inequality, which in turn contributes to rising income inequality.
33
Share of labor income declined while share of capital income increased
Japan
Korea, R
ep. of
PRC
Taipei,C
hina
Indonesia
Singapore
Mala
ysia
India
Hong Kong, C
hina
Bangladesh
0
10
20
30
40
50
60
70
Labor Income ShareManufacturing
Early 1990s Mid-1990s Early 2000s Mid-2000s
34
Skill premium has risen; education inequality accounts for 25–35% of total inequality
1995 2007 1993 2009-10
1990 2010 2002 2008 1994 2009 1995 2005
PRC India Indonesia Pakistan Philippines Thailand
0
10
20
30
40
50
8.1
26.5
20.3
29.9 29.825.0 23.2 24.7
30.835.7
44.2 46.2
Income inequality decomposition by educational attainment of household head
Shar
e of
bet
wee
n-gr
oup
ineq
ualit
y, %
35
Spatial inequality—urban-rural and inter-province combined—accounts for a large share of total inequality
Sri Lanka (2009)
Philippines (2009)
Pakistan (2008)
Indonesia (2009)
India (2008)
Viet Nam (2008)
Bhutan (2007)
PRC (2007)
0
10
20
30
40
50
60
13
21 2226
3235
38
54Share of spatial inequality (%)
36
How to respond to rising inequality?
• The three drivers of growth should be promoted.
• Governments can address rising inequality through– Growth that is more employment friendly to increase
the labor income share
– Efficient fiscal measures to reduce inequality in human capital, supported by effective and fair tax systems
– Interventions to reduce spatial inequality, including both urban-rural income gaps and regional disparity
– Governance reform to equalize opportunities.
37
More broadly, move toward inclusive growth• Inclusive growth means everyone can participate in and
benefit from the growth process.
• Inclusive growth makes a distinction between – Inequality due to differences in individual efforts, and
– Inequality due to differences in individual circumstance (ethnic background, gender, parental education, location, etc.), that is, inequality in opportunity.
• Reducing or eliminating inequality in opportunity is at the heart of an inclusive growth strategy:– Inclusive growth is “growth coupled with equality of opportunities”.
38
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