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Since its emergence as a development paradigm at the turn of the century when
Kakwani and Pernia (2000) defined what is pro-poor growth and up to this writing
there has been several papers written on Inclusive Growth that sifting through the
materials, it would seem that this is one topic which has been prolifically written by
academics and development practitioners.
However, for this proposal, the focus of the review of literature and studies will be
on (a) definition of inclusive growth; (b) evolution of inclusive growth; (c) inclusive
growth and policy implications; and (d) measuring inclusive growth, as these are the
elements that have to be taken into consideration in reference to the objectives of
this paper.
What is Inclusive Growth
While the Asian Development Bank has produced several studies, publications on
inclusive growth and inclusive development, it is worth noting that there is no
agreed and common definition of inclusive growth or inclusive development among
international institutions, the term is understood to refer to growth coupled with
equal opportunities and consisting of economic, social, and institutional dimensions.
There is inclusive growth when all members of a society participate in and
contribute to the growth process equally regardless of their individual
circumstances. In the same way, inclusive growth is one which emphasizes that
economic opportunities created by growth are available to all, particularly the poor
to the maximum possible extent. ( Rauniyar and Kanbur, p. 39)
It was only in 2009 that the World Bank has released a note on the definition of
inclusive growth (Lanchovichina & Lundstrom, 2009) which was put in a box:
Box 1: What is Inclusive Growth (IG) About?
IG focuses on economic growth which is a necessary and crucial condition for
poverty reduction.
IG adopts a long term perspective and is concerned with sustained growth.
(a) For growth to be sustained in the long run, it should be broad-based across
sectors. Issues of structural transformation for economic diversification
therefore take a front stage. Some countries may be an exception and
continue to specialize as they develop due to their specific conditions (e.g.
small states).
(b) It should also be inclusive of the large part of the countrys labor force,
where inclusiveness refers to equality of opportunity in terms of access to
markets, resources and unbiased regulatory environment for businesses and
individuals.
IG focuses on both the pace and pattern of growth. How growth is generated is
critical for accelerating poverty reduction, and any IG strategies must be tailored to
country-specific circumstances.
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Similarly, the International Policy Centre for Inclusive Growth (IPC - IG) had come up
with the list of definitions of inclusive growth (Ranieri & Ramos, 2013) and a matrix
of definitions with the key elements:
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Structural change drives growth and employment dynamics. Market alone does
not do it
Growth is inclusive when it allows all members of a society to participate in the
growth process
Full Employment should be the primary objective of economic policy in developing
Asia
Needed: A set of policies that lead to Full Employment in the context of the
challenges posed by structural change: (i) Agriculture; (ii) Public Investment; (iii)
Industrial Policy; (iv) Fiscal and Monetary; (v) Job Guarantee Programs
On the same year, the Asian Development Bank through Habito came up with a
book on inclusive growth focusing on the Philippines (Habito, 2010).
In this publication, Habito identified the two fold challenge for the Philippines
namely accelerating and sustaining higher rates of growth, and ensuring that such
growth involves and benefits a broader spectrum of the economy, both sectoraly
and geographically.
A country diagnostic study done in 2007, ADB Critical Development Constraints
Study (ADB, 2007) identified the following as the main factors inhibiting the
economic growth of the country as follow: tight fiscal situation; inadequate
infrastructure, particularly in electricity and transport; weak investor confidence due
to governance concerns; and market failures leading to a small and narrow
industrial base.
The paper cited these constraints have not eased and have in fact even turned for
the worse. All four constraints are ultimately linked to weak governance manifested
in various forms. Tight government finances result from poor tax administration,
widespread tax evasion, and smuggling. Lack of infrastructure is in turn a direct
result of this. Weak investor confidence results from policy reversals and poor policy
implementation and/or enforcement, which undermine the predictability of the
policy and regulatory environment. Cumbersome government procedures and
requirements significantly increase transaction costs for business, further negating
the investment climate. Over-centralized decision making leads to ill-conceived
interventions, often unresponsive to actual local needs. Regulatory capture fosters
monopolistic tendencies that lead to narrow benefits and higher costs in key
industries, thereby undermining competitiveness in downstream economic activities
and leading to small and narrow industrial base.
Finally, the industry/sectors identified that would have positive impact on inclusive
growth are Agriculture and Agri-business; tourism; business process outsourcing;
food and design based manufactures; and Mining.
Measuring and Monitoring Inclusive Growth
The report Framework of Inclusive Growth Indicators Key Indicators for Asia
and the Pacific 2011 Special Supplement (Asian Development Bank, 2011) is a
special supplement to the Key Indicators for Asia and the Pacific 2011 which
presents a framework of inclusive growth indicators (FIGI) and proposes a set of 35
indicators of inclusive growth. The FIGI was conceptualized with the three policy
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pillars. The first pillar is on High, Efficient and Sustained Growth to Create
Productive Jobs and Economic Opportunity; the second pillar: Social Inclusion to
Ensure Equal Access to Economic Opportunity; The third pillar: Social Safety Net.
Klasen, (2010) discussed the indicators that should be used to monitor inclusive
growth at the country, program or project level. After defining inclusive growth and
reviewing the existing literature on the topic, it was emphasized that inclusive
growth should be measured both by process and outcomes. Formally, an instance of
inclusive growth at the country level is defined as one that exhibits: positive per
capita income growth rates; income growth rates for predefined disadvantaged
groups at least equal to per capita rates; and expansion of non-income dimensions
of well-being for disadvantaged groups that exceed the average rate. At the
program or project level, country level indicators are deemed too crude to measure
inclusive growth. Instead, the focus should be on assessing the project's goals in
regard to beneficiaries and comparing this data to an inclusive growth agenda. This
can be done by defining indicators such as: Does the project / programme aim to,
and be likely to, lead to increased employment of poor people (using the $2.50/day
indicator)?
McKinley, (2010) outlines a composite inclusive growth index at country level,
consisting of indicators in the areas of: (1) growth, productive employment, and
economic infrastructure; (2) income poverty and equity, including gender equity; (3)
human capabilities; and (4) social protection. The index can be used as a diagnostic
tool for assessing country progress on inclusive growth, or as an initial framework to
assess the alignment of donor assistance to a countrys strategic priorities.
The report of Ramos and Lammens (2013) acknowledged the lack of a clear
definition of inclusive growth, this report attempts to comprehensively measure
inclusive growth at the country level using three indicators: poverty, inequality, and
the employment to population ratio (EPR). The authors highlight that poverty and
inequality are already established as measures of pro-poor growth and inclusive
growth from an outcomes perspective, and that it is EPR that adds an inclusive
aspect to this measure through its participatory focus. EPR is used as a proxy for
economic participation, as productive employment is poorly defined and difficult to
operationalise due to lack of data. The analysis shows that most developing
countries have managed to increase their level of inclusiveness due to a decrease in
poverty levels and no increase in inequality. The authors argue that this increase in
inclusiveness cannot be explained by economic growth, as some countries showed
high increases in inclusiveness with low growth, and some of the countries with the
worse inclusiveness performances had very high growth rates.
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