Rich-Poor Divide Deepens in Asia

Wealth gaps remain amid growth in three giant economies: People’s Republic of China, India, and Indonesia.

Rapid economic growth has lifted more than 700 million Asians out of poverty. Yet disparities in income and opportunities are increasing in the region. There are still hundreds of millions of people who have not profited from Asia’s prosperity. And many of them live in the expanding and populous economies of the People’s Republic of China (PRC), India, and Indonesia.

The PRC has seen the fastest economic expansion, but also the region’s highest increases in inequality. Between 1990 and 2012, the PRC experienced an annual growth rate of 10.2% in its gross domestic product (GDP). During the same period, inequality increased more than 1.6% per year as measured by the Gini coefficient, a standard measure for economic inequality, making it among the highest in developing Asia.

India also enjoyed strong GDP growth between 1990 and 2012 - averaging 6.6% annually. These improvements were also accompanied by an increase in inequality, with the Gini coefficient rising from 32.5 in 1993 to 37 in 2010.

Indonesia has experienced similarly strong GDP growth. Between 2007 and 2012, real GDP grew by an average of nearly 6% per year. The country has made significant strides in terms of reducing poverty. Yet, in line with other countries in the region, Indonesia has seen a steady increase in its rates of inequality. Its Gini coefficient has increased from 31 in 1999 to 41 in 2011.

All three countries have initiated major economic reforms and leveraged the forces of technological progress and globalization in recent decades. These have brought strong economic growth and great prosperity, but the growth has not been distributed evenly across their societies, leading to greater inequality. This has emerged in the form of a bias in favor of capital and skills.

Most noticeably, these forces have afforded greater income and opportunities to people living in areas with superior infrastructure, market access, and scale economies, such as coastal and urban areas.

All three countries have recognized the need to increase employment opportunities in order to address inequality. This can be done through growth that balances the needs of manufacturing, services, and agriculture, as well as by support for small and medium-sized businesses. Policies and programs must also target regions most affected by inequality and address non-income inequalities, such as in education and health, increasing spending on social programs, and improving investments in human capital and access to public services.

This overview is excerpted from the article, The Growth Conundrum, published in the April 2013 edition of Development Asia magazine.