Academic journal article Asian Development Review

Measuring Inclusive Growth

Academic journal article Asian Development Review

Measuring Inclusive Growth

Article excerpt

This study proposes an approach to measuring inclusive growth. It draws from the idea of a social opportunity function akin to a social welfare function. In this context, growth is defined as inclusive if it increases the social opportunity function, which depends on two factors: (i) average opportunities available to the population, and (ii) how opportunities are shared among the population. In part, the inclusiveness of growth can be captured by means of an opportunity curve, which has a one-to-one relationship with the social opportunity function. To complement the shortcoming of the opportunity curve particularly partial ranking, the study also develops the opportunity index to provide a complete ranking. These tools are applied to the Philippines to analyze the access to and equity of opportunities in education and health. More importantly, the empirical application illustrates how these tools can be useful in the dynamic analysis of inclusive growth, as they evaluate changes in opportunities over time.

I. INTRODUCTION

The dramatic reduction in poverty achieved in parts of Asia is well-documented. Overall between 1990 and 2001, the number of people living on less than $l-a-day declined from 931 to 679 million, or from 31 to 20 percent of a growing population (ADB 2006). These successes are closely associated with rapid growth, and driven in particular by high growth rates in a few countries including People's Republic of China, India, and Viet Nam.

While some level of growth is obviously a necessary condition for sustained poverty reduction, and strong average growth has been accompanied by a sharp reduction in poverty, the evidence is clear that growth by itself is not a sufficient condition. Growth does not guarantee that all persons will benefit equally. Growth can bypass the poor or marginalized groups, resulting in increasing inequality. High and rising levels of income inequality can lower the impact on poverty reduction of a given rate of growth, and can also reduce the growth rate itself. High inequality also has implications for political stability and social cohesion needed for sustainable growth (ADB 2007a and b). Hence, reducing inequality has become a major concern of development policy, a concern that has generated interest in inclusive growth. While there remains no consensus on how to define or measure inclusive growth, the issue has generated a certain amount of policy and academic debate.

Very recently, the report of the Eminent Persons Group that was initiated by the Asian Development Bank (ADB 2007c) made reference to the term "inclusive growth", which emphasizes ensuring that the economic opportunities created by growth are available to all-particularly the poor-to the maximum possible extent (see also Ali and Zhuang 2007). The growth process creates new economic opportunities that are unevenly distributed. The poor are generally constrained by circumstances or market failures that constrain them from availing these opportunities. As a result, the poor generally benefit less from growth than the nonpoor. Thus, growth will generally be not pro-poor if left completely to markets. The government, however, can formulate policies and programs that facilitate the full participation of those less well off in the new economic opportunities. We may thus define inclusive growth as growth that not only creates new economic opportunities, but also one that ensures equal access to the opportunities created for all segments of society, particularly for the poor.

Consistent with this definition, this paper provides an approach to measuring inclusive growth. The study proposes a new methodology to capture inclusive growth, based on a social opportunity function that is similar to the idea of a social welfare function. The paper is organized in the following manner. section II is devoted to describing the methodology. Section III provides discussion of the empirical results. For the empirical study, we have used data culled from the Philippines's Annual Poverty Indicator Survey (APIS) conducted in 1998 and 2004. …

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