INCLUSIVE GROWTH

Planning commission,2007 inclusive growth  as a strategy of economic development received attention owing to a rising concern that the benefits of economic growth have not been equitably shared Growth  inclusive when it creates economic opportunities along with ensuring equal access to them Apart from addressing the issue of inequality, inclusive growth  make poverty reduction efforts more effective by explicitly creating productive economic opportunities for the poor and vulnerable sections of the society

Rapid and sustained poverty reduction  requires inclusive growth that allows people to contribute to and benefit from economic growth

Inclusive Growth Growth  main factor in reducing poverty The poorer the country, the more important growth is in explaining poverty reduction Sustainable growth in the long-run  broad-based across sectors and inclusive of the large part of the labour force Inclusive growth  implies a direct link between micro and macro determinants of growth Pace and pattern of growth – importance of structural transformation for economic diversification Competition – creative destruction of firms and jobs

inclusive growth  refers both to the pace and pattern of growth, which are considered interlinked, and therefore in need to be addressed together

Inclusive Growth When a growth process ensures widespread human development – defined broadly as the expansion of freedoms that human beings have reason to value, then the growth process can be called as inclusive growth

Inclusive Growth Inclusive growth is both an outcome and a process Societies based on equality tend to perform better in development. For instance, countries with more equal income distribution are likely to achieve higher rates of poverty reduction than very unequal countries. IG ensures that everyone can participate in the growth process, both in terms of decision-making for organizing the growth progression as well as in participating in the growth itself. IG ensures that everyone shares equitably the benefits of growth. Inclusive growth implies participation and benefit-sharing. Participation without benefit sharing will make growth unjust Sharing benefits without participation will make it a welfare outcome.

Pillars of Inclusive Growth Pillars of Inclusive Growth: Social Protection and Promotion Productive Inclusion and Generation of Opportunities Territorial Development IG maximizes social and economic value Social inclusiveness as an approach for business is embedded with sustainability framework for economic growth and social responsibility Sustainability framework: 1. Financial(economic) 2. Social(need to sustain specific structures and cultures) 3. Environmental

The Growth Diagnostics Framework

Housing & Environment Sustainability Assessment Uncertainty Principle Equity and Human Rights Capital Stock Practice Methods, Themes and Indicators Policy Principles and Objectives Theory Approaches Institutional Theory and Governance Business and Corporate studies Behavioural and Welfare Economics Transition Theory Intra- and inter- Generational Equity Protection and Promotion of Health and Safety Recognition and Preservation of Diversity Precautionary Principle EducationEmploymentDemography Health and Safety Social mixing/ cohesion Identity, Image, Heritage Well-being Empowerment, Participation, Access Social Sustainability Social Sustainability Assessment Framework (SSAF) © Colantonio (2009)

Inclusive Growth – a strategy? IG is a strategic effort to reach the bottom-of-the pyramid Untapped market potential for many products and services Strategic Brand Building and corporate relations exercise Expand the value-chain and include the excluded

`Fortune at the Bottom of the Pyramid’ by C.K. Prahalad Around 4 billion of the world's 6.5 billion people live on less than $US1500 per capita per year (real purchasing power parity values) million in the top portion earning more than $US20,000 a year, then 1.5 to 1.75billion earning between $1500 and $20,000 a year Majority of potential consumers who are poor constitute an ignored source of market Billions of poor who are joining the market economy for the first time.

Trade, Inclusive Growth and Inclusive Policy Making

Overview Inclusive growth : broad-based, pro-poor growth, growth with equity International trade promotive of inclusive growth entails complementary measures in both policy and institution building Promoted by inclusive policy making Benefit from expansion and deepening of community based monitoring systems.

Benefits of International Trade International trade welfare enhancing overall. Globalizers grew faster, higher trade, higher share of manufacturing to total employment and output, and higher wage rates than non- globalizers (WB; Rama) Trade key element of East Asian Miracle Trade: reference against global competitors, impetus for greater efficiency, product quality, supply reliability, creativity, organizational adaptability.

Trade and Inclusive Growth: Factors However, international trade not automatically growth inclusive except with homogenous factors and factor mobility between sectors Critical factors toward inclusive growth: (a) Investment climate and investment rate; (b) capability, infrastructure and access to skill development; ( c ) agriculture volatility and natural resources concentration; (d) quality of institutions, regulatory climate and governance

Trade and Inclusive Growth: Experiences Increasing inequality in high growth East Asia (e.g., China) Sharp trade expansion with rise in poverty incidence in some African countries; e.g., Madagascar, Burundi, Central Af Repblic Sharp rise and diversification in manufactured exports but declining share of manufacturing in total output and employment (Philippines)

Trade and inclusive growth Any happy resolution bet. the globalization demands of economic efficiency and the imperative of social equity of inclusive growth? Rests on: – quality of the investment response, –workings of the labor market and industrial relations, –overall macroeconomic environment, and –quality of government institutions and related policies, among others.

Investment and Adjustment Effective restructuring and successful adjustment involves investments. Investment rates(2006): RP-17%; Thailand-23%; Vietnam-34%; China-43%. Improving investment climate and performance

Investment Climate: Determinants of FDI Regressed FDI to GDP ratio on selected indicators in World Competitiveness Survey for selected Asian countries Ratio increases if: GDP rises, school system meets demands of competitive economy, lower investment risk, more facilitative customs, lower unit labor cost, currency depreciates, lower bribery and corruption, better quality of the govt bureaucracy, improved infrastructure Ratio decreases if: higher real domestic interest rate

Determinants of FDI (cont’d) FDI influenced by quality of economic governance, quality of institutions, structural factors like quality of infrastructure and educational system.

Improving Agri Productivity and Transportation Links Robust agri productivity growth key factor plus rising labor intensive manufactures for fast rate of poverty reduction in countries like China, Vietnam, Indonesia (1980s) among recent success stories. Stagnant agri productivity, high population growth, poor rural roads led to farmers as net food consumers and malnutrition in some African countries. Agri development central to pro-poor growth esp. in Africa. Good roads important for farmers in hinterlands get access to main domestic markets under open trade Good seeds, fertilizer, irrigation, R & D and farmer training important for robust agri productivity & growth

Human capital, Safety net Improved human capital, labor –management relations and basic social safety net in health and education increase labor productivity and mobility intersectorally and across skills, result to smoother adjustment and support inclusive growth. Rural education key factor for fast reduction in poverty in China in 1980s

Inclusive Policy Making Trade lib and inclusive growth not automatic. Needed: pro-poor complementary measures that contribute to competitiveness & productivity Inclusive policy making (IPM) facilitates effective pro- poor complementary measures

CBMS (cont’d) Drive for inclusive growth in an open economy can come from better targeted programs and more pro-poor programs at the local level. CBMS contributes to improved resource allocation at the local level.

Concluding Remarks Basic question raised: how can trade liberalization and expansion be growth inclusive? Paper highlights importance of investment climate, investing in people (with a bias for the poor and the hitherto unskilled) and institutions, robust agricultural productivity and good domestic transport links, basic and limited-duration social safety nets in education and health for inclusive growth in an open economy Inclusive policy making and CBMS contribute to effective and pro-poor policies and [programs needed to make trade expansion growth inclusive.