GIGW-C3: Rising Inequality in Asia and Policy Implications §

Class: IS402 Created Time: October 12, 2021 8:57 PM Database: Class Notes Database Last Edited Time: March 20, 2022 10:55 PM Tags:#Article,#Public-Policy Type: Literature Notes, Reading Notes URL: http://hdl.handle.net/11540/1225

Abstract §

• Recent trends of rising inequality in developing Asia
• asks why inequality matters
• examines the driving forces of rising inequality
• proposes policy options for tackling high and rising inequality
• Asia’s economic growth also has issues of unequal distribution of wealth
  • favor owners of capital over labor worker
  • favored skilled over unskilled workers
  • urban & coastal areas over rural & inland regions
• Institutional weaknesses and social exclusion caused unequal access to opportunities
• You can’t block the 3 driving forces of inequality because its the same ones that drive productivity and income growth
• Keywords
  • Spacial Inequality
  • inclusive growth: growth coupled with equality of opportunity to benefit from the system.
  • Income Inequality Decomposition
  • Gini Coefficient: is a common measure of inequality ranging from zero, indicating perfect equality, to 1, indicating perfect inequality.
  • Rent-seeking is the effort to increase one’s share of existing wealth without creating new wealth

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1. Introduction §

• Why should we learn about this?
• In the last two decades, Asia’s poverty reduction was the fastest ever
  • but it also brings a lot of inequaity
• ‘Growth with Equality’ in 1960s-70s such as South America where income equality is lower
• Asia’s economic growth uneual distribution of wealth
  • favor owners of capital over labor worker
  • favored skilled over unskilled workers
  • urban & coastal areas over rural & inland regions
  • Institutional weaknesses and social exclusion caused unequal access to opportunities

2. Recent Trends in Inequality in Developing Asia §

• Recent trends of rising inequality in developing Asia
• 1990 to 2010, the average annual growth rate of GDP for developing Asia reached 7% in 2005 (much more than any other region)
  • Poverty rates reduced
  • Living standards improved
• rising inequality of Wealth/Distribution of Income
  • positive correlation with Gini Coefficient & GDP growth
• rising inequality of Opportunity
  • Growth without development: GDP increase but distribution of income/income gap is large
  • poor countries, children is 3-5 times more likely to drop out of primary and secondary school than the richest
  • Tertiary education: poor kids are 10-20 times more likely to not attend college than rich
    • Tertiary education has high gender disparity
  • Infant mortality rates 2-3 times more common in poor than rich households

3. Why Inequality Matters §

• Why does inequality matter?
  • Economic growth will generate a lower rate of poverty reduction when inequality is increasing than when it remains unchanged or is decreasing
• Does it only concern the poor? How about middle income or rich?
• Does inequality affect any other aspects of society such as environment, people’s behaviors?

How does inequality negatively affect growth? §

1. Low income individuals can’t use money to invest in human capital, therefore staying poor
   • Market failures make them have less chance in borrowing and investing money
   • People barely above poverty line is very sensitive to fall back to poverty due to any economic failure
2. Inequality means small middle-class. Economic growth pushed and benefited by middle-class is more likely to be sustained
   • Economically: rent seeking and corruption associated with highly concentrated gains to growth are avoided
   • Politically: conflict and horizontal inequalities between racial and ethnic groups are easier to manage
3. Political and institutional instability: property rights, crime, and violence
4. Demands for change by the mass poor makes politicians favor policies that benefit the poor rather than economic growth

💡 India’s 11th Year Plan: for ‘not just faster growth but also inclusive growth, that is, a growth process which yields broad based benefits and ensures equality of opportunity for all.’

China’s 11th Five-Year Plan to build a harmonious society

China’s 12th not just the rate of growth, and making growth inclusive

• Who are responsible for inequality?
  • Weak Institutions: must create public policies to include individuals marginalized from gender, ethnic origin, parental education, or location of birth
  • Individual’s Efforts: efforts in the labor market or in education

4. What Drives Inequality in Developing Asia §

• What are the driving forces of inequality in Asia?
  • The key drivers of developing Asia’s rapid growth in the last two decades— technological progress, globalization, and market-oriented reform—have had huge distributional consequences
• Does these drivers of inequality apply to everywhere or only Asia?
• Can we attain economic growth/productivity without inequality? is it possible?

5. How to Respond to Rising Inequality §

• What are the practical ways countries could tackle inequality in their country more directly at its roots rather than to address its symptoms?

6. Summary: Towards Inclusive Growth in Asia §

Drivers of growth = Drivers of inequality

• These forces require Asian policy makers to redouble their efforts for inclusive growth
  • generate more productive jobs: sustained growth to create productive jobs for a wide section of the population
  • equalize opportunities in employment education, and health: social inclusion to equalize access to opportunity
    • help citizens build their human capital
  • address spatial inequality: social safety nets to mitigate vulnerability and risks and prevent extreme poverty
• Inclusive Growth plan is backed by three pillars