Poverty, Inequality, and Inclusive Growth in Asia

Juzhong Zhuang and Ifzal Ali

1.1 Introduction

Developing Asia's stellar growth rates have masked rising inequality, leading to "two faces of Asia" — one "shining" and the other "suffering". Competing internationally and benefiting from the forces of globalization, technological change, and economies of scale, the shining Asia has grabbed the attention of the media and the world. In the suffering Asia — not as well publicized — unacceptably high numbers of people are vulnerable and live in poverty. These two faces present both a beacon of hope and a symbol of despair. Merging them will be a development challenge for many years to come.

Inclusive growth, with its focus on creating economic opportunity and ensuring equal access, will play a pivotal role. More and more countries in developing Asia are adopting inclusive growth as the goal of development policy. India recently switched to a development strategy focusing on two objectives: raising economic growth and making growth more inclusive (Planning Commission of India 2006). In the People's Republic of China (PRC), the government made the creation of a "harmonious society", a concept very closely related to inclusive growth, the top priority in its 11th Five Year Plan (State Council of China 2006). In Thailand, growth with equity is one of the elements of its "sufficiency philosophy", underpinning the government's development efforts (UNDP 2007). A similar theme can be found in Viet Nam's socioeconomic development strategy, which advocates "quick and sustainable development, economic growth in parallel with implementation of initiatives, social equity, and environment protection" (Central Committee of the Communist Party of Viet Nam 2001).

This chapter asks why developing Asia is embracing inclusive growth, discusses the concept of inclusive growth and its policy ingredients, and highlights key findings of the entire volume.

1.2 Why is developing Asia embracing inclusive growth?

The recognition of the relevance and importance of inclusive growth in developing Asia has been triggered by rising concern that the benefits of spectacular economic growth have not been equitably shared (Ali 2007).

Economic growth in the region has been rapid in recent decades, with gross domestic product (GDP) per capita in 2005 purchasing power parity (PPP) terms increasing from $1,631 to $4,430 during 1990–2008. The region's annual growth rate of 5.7% has few parallels in history (Table 1.1). Across the region, growth was most pronounced in East Asia, at 8.1% per year on average, driven largely by the PRC. Southeast Asia grew at 3.4% per year, despite the interruption of the 1997/1998 financial crisis. South Asia grew at 4.5% per year, which, although low, represents a significant improvement, particularly given the recent acceleration of growth in Bhutan, India, and Sri Lanka. Central and West Asia and the Pacific have lagged all subregions, growing at only 1.3% and 0.3% per year, respectively.

The region's rapid growth has led to a dramatic reduction in the level of extreme poverty. Using the $1.25-a-day poverty line (based on 2005 PPP), the incidence of income poverty declined from 52.3% to 27.1% during 1990–2005 (Table 1.1). The decline in percentage-point terms was most pronounced in the PRC (44.3), followed by Cambodia (37.1), Pakistan (35.9), Indonesia (32.8), Lao People's Democratic Republic (30.2), Bhutan (24.2), Nepal (22.3), Azerbaijan (16.1), Mongolia (12.5), Viet Nam (11.4), India (9.6), Thailand (9.0), Philippines (7.1), Sri Lanka (4.7), Armenia (1.6), and Malaysia (1.4). In Georgia, Kyrgyz Republic, Tajikistan, and Uzbekistan, however, the $1.25-a-day poverty incidence increased significantly and, in Bangladesh, remained more or less unchanged. Using the $2-a-day poverty line, the decline in poverty incidence for developing Asia, from 79.4% to 54%, was equally significant, although with similarly large cross-country variation.

Nevertheless, poverty reduction remains a significant challenge. As of 2005, 903 million Asians still lived below $1.25 a day. In 14 out of the 22 countries listed in Table 1.1, poverty incidence measured by this poverty line was above 20% and, in four, was above 40%. Using the $2-a-day poverty line, 1.803 billion Asians lived in poverty, with 17 out of the 22 countries having a poverty incidence at above 30% and 12 countries at above 50%. Even in high-growth countries such as the PRC and Viet Nam, as of 2005, poverty incidence remained at 36% and 51%, respectively.

It is also true that large proportions of populations live just above the poverty lines, and could easily slip into poverty given economic shocks. A recent study on the impact of the global economic crisis on poverty reduction efforts in developing Asia indicates that, under the baseline scenario of no economic slowdown, 586 million Asians would live below $1.25 a day and 1.43 billion below $2 a day in 2010 (ADB 2009). Assuming a mild slowdown due to the global economic crisis — with per capita GDP growth in 2008, 2009 and 2010 at 1 percentage point lower than the 2007 level — an additional 33.5 million would live below the $1.25-a-day poverty line and an additional 41.9 million below the $2-a-day line in 2010. Much slower growth would lead to a higher number of additional poor (Table 1.2).

An emerging issue for developing Asia is rising inequality, which has raised concern that the benefits of spectacular growth have not been equitably shared. Chapter 2 shows that a large number of developing...