Sustaining GDP growth through greater inclusion

The time has come for government and economic leaders throughout Asia and the Pacific to push harder for more socially inclusive growth. Indeed, it has become imperative to sustaining the region’s strong economic performance and restoring a healthy environment. 

The Asian Development Bank’s (ADB) 47th annual meeting getting under way this week in Astana, Kazakhstan— drawing government, private sector and non-government leaders from around the region — therefore presents a good opportunity for further mapping out the complex route to greater inclusion in the region’s diverse economies.

The strains revealed by the recent global economic crisis or by frequent, devastating natural disasters in the region go to the heart of the need for greater inclusion. Whether ensuring that economic growth remains robust or keeping the vulnerable out of harm’s way when calamity strikes, the task is made easier when lower-income groups participate in the growth process. This is because programmes that increase inclusion help countries more fully tap the economic potential of all citizens, not only the well-off.

In turn, improving living standards help those more vulnerable to make better choices to avoid or better prepare for disasters. This is especially true of hazards associated with climate change, such as more frequent intense storms, which tend to have worse impact on lower-income groups.

To be sure, dramatic poverty reduction in Asia is rightly lauded. But several measures point to a lack of inclusion that would suggest considerable room for improvement, including still-wide or even widening inequality in some of the biggest economies and weak household consumption growth in several countries.

The well-known Gini coefficient, for example, increased from 39 in the mid-1990s for all of developing Asia to 46 in the late 2000s (zero represents complete equality and 100 complete inequality). This largely reflects a rising figure in the largest economies, such as China, where the Gini rose from below 30 in the 1970s to over 47 in recent years. In Thailand, the Gini edged down slightly from about 43% in 2000 to about 39% in 2010.

Another measure of inclusion, household consumption, also reveals room for improvement. In the Philippines in 2003–2006, consumption actually declined 0.15% for each 1% increase in gross domestic product, as noted in a recent Independent Evaluation of ADB’s support for inclusive growth. This improved in 2006–2009, when consumption growth was a modest 0.4%. Yet the corresponding figure for Vietnam was much stronger, at about 0.9% growth in 2004–2006.

What these and other figures tell us is that not everyone is benefitting sufficiently from rapid growth alone. And a big part of the problem is that lower-income groups frequently have much worse access to infrastructure and services, such as in education or in health, that could help improve their lot.

Fortunately, developing countries from around the region present a diverse set of programmes with demonstrated success in addressing the issue. The Philippines, despite its slow progress in other areas, has nevertheless helped point the way to solutions that other countries might emulate using conditional-cash transfer programmes tied to health and education services.

The country has also adapted lessons from other countries in the design of the ADB-supported community-driven development project known as the Comprehensive and Integrated Delivery of Social Services (Kalahi-CIDSS) to better target community needs. After being set up in 2002 to help rural municipalities to invest in public goods, it is expanding operations from 364 lower-income municipalities in 49 provinces to 900 in 63 provinces.

Another way to increase inclusion is to link traditional infrastructure projects with initiatives in the social sectors. Road projects, for example, can improve inclusion if they are linked with programmes addressing education and health care in the same area. The Indonesia Rural Infrastructure Support Project stands out. It improved access to basic infrastructure and services for some two million people in 1,840 villages; road access to markets, water supply and irrigation facilities, supply of basic goods; and access to education and public services. Vietnam’s growth process over the last decade, meanwhile, provides a good example of inclusive growth. Significant poverty reduction and equity in most opportunities has accompanied impressive economic growth.

This is surely rooted in the economy’s capacity to generate opportunities for almost everyone over the last decade and the government’s commitment to public spending on the social sectors. Education spending was a strong 16% of total state budget expenditures in 2012 and projected to increase to 18.4% in 2014; health rose from 6% in 2012 to a projected 6.4% in 2014.

The ADB, which hosts government and development leaders, brings a firm commitment to making economic growth more inclusive. The institution can underscore the urgency by helping countries identify innovative strategies and programmes that are working and bringing them to the attention of a broader audience.