Introduction

The importance of pursuing gender equality has long been recognized around the world, including Asia and the Pacific. Virtually all countries in the region are parties to the Convention on the Elimination of All Forms of Discrimination against Women, and gender equality is explicitly guaranteed in many constitutions and statutes (ADB et al. 2006). Indeed the region has made impressive progress in reducing gender inequality over the last few decades. Nevertheless, women remain disadvantaged in access to economic opportunity and resources, basic human rights, and political voice (World Bank 2007). Because gender discrimination directly affects the well-being of women, gender equality is a legitimate policy goal in its own right. At the same time, development organizations increasingly acknowledge the role of gender equality and women's empowerment as a powerful means to foster development and poverty reduction (e.g., ADB 2007 and 2008, World Bank 2008).

Inequality can result from differences in either effort, which is under the control of an individual, or circumstance—such as gender, religious background, geographical location, and parental education—which is not (Roemer 2006). Gender inequality is a prominent example of the latter. As described elsewhere in this book, inclusive growth is growth that not only generates economic opportunity, but also ensures equal access to opportunity to all segments of society (Ali and Zhuang 2007). Hence, inclusive growth can only be achieved if, among other things, gender disparity is properly addressed.

Introduction

Many consider the provision of basic social services, such as schooling and health care, both the ends and means of economic development. Education is commonly viewed as an important dimension of human development in Asia, while a shortage of skilled labor is often cited as a growth constraint in many countries or sectors. Delivery of basic services therefore has attracted considerable attention from national governments, development agencies, nongovernment organizations (NGOs), and the research community.

Despite the greater supply of basic services in developing Asia and beyond, evidence shows that the poor have failed to gain sufficiently from it. This chapter therefore explores the causes of such failures. Section 6.2 provides a brief account of the current state of service delivery in developing countries, with a special focus on Asia. Section 6.3 presents a synthesis of the barriers the poor face in accessing various services, with boxes highlighting good practices in pro-poor service delivery in developing countries. Section 6.4 summarizes and concludes.

Unequal access to basic services: A brief account

Developing countries and development institutions in the past 2 decades have increased efforts to improve the quality and accessibility of basic social and infrastructure services and to make them more inclusive. But outcomes have been mixed: while some have been successful, others have benefited the rich more than the poor. And in many communities in the developing world, the poor still lack adequate access to basic services (O'Donnell et al. 2007).

The Asian Development Bank (ADB) has adopted a long-term strategic framework for 2008–2020 (Strategy 2020) in response to the evolving needs of and emerging development challenges facing the Asia and Pacific region. Strategy 2020 sets out three strategic agendas to help ADB turn its vision—an Asia and Pacific region free of poverty—into reality: inclusive economic growth, environmentally sustainable growth, and regional integration.

To support the deliberation and implementation of Strategy 2020, ADB staff and their collaborators in recent years carried out a series of studies under the inclusive growth research program of the Economics and Research Department (ERD). These aim to improve understanding of the concept of inclusive growth, its policy ingredients, and its importance in helping the region achieve the Millennium Development Goals and eradicate extreme poverty.

This volume presents a selection of papers arising from these studies in three parts. The first focuses on recent trends of income and non- income inequality and poverty in the region, and their underlying driving forces; the second examines selected policy issues concerning inclusive growth, including employment, access to public services, social protection, and governance and institutions. The third comprises six country studies with rich information on growth, poverty, and inequality dynamics and policy challenges.

The completion of this volume would not have been possible without contributions from numerous people. A total of 21 ADB staff and their research collaborators were involved in writing various chapters.

Introduction

Given rapid population growth and the large increase in labor force participation (LFP), employment growth in the Philippines has been insufficient to lower unemployment and underemployment rates. Productivity growth has been meager and spotty. Labor productivity increased by less than 7% in 1988–2000, far lower than the 30%–50% increase in other Asian countries, such as Indonesia, Republic of Korea, Malaysia, and Thailand. Income generated from employment in the labor market is the main source for most Filipinos, and growth in income therefore depends very much on growth in employment and in labor productivity. Thus, the labor market plays a critical role in determining average income and shaping income distribution among individuals in the Philippines.

This chapter analyzes economic growth and changes in income inequality in the Philippines, with a particular focus on the role of the labor market. A decomposition methodology is proposed to explore the links between growth and income inequality through characteristics such as LFP, employment rate, working hours, and productivity. This helps improve understanding of how the labor market has affected the country's economic growth and changes in income inequality so that the government can formulate labor market policies to enhance growth and reduce inequality.

For data, the analysis uses the Family Income and Expenditure Survey (FIES) and the Labor Force Survey, carried out by the National Statistics Office (NSO various years). Both provide micro unit record data at the household and individual levels.

Introduction

Nepal made significant progress in reducing poverty between 1995– 1996 and 2003–2004, despite political instability. However, poverty incidence remains high–estimated at about 31% in 2003– 2004–and inequality also increased during this period. Based on the Gini coefficient, inequality rose from about 34.2 in 1995–1996 to about 41.4 in 2003–2004, the highest in South Asia. Such trends seem to suggest the limited inclusiveness of Nepal's recent economic growth. Given that poverty and inequality are considered among the most significant drivers of recent internal conflicts, it is important that a new growth strategy opens up economic opportunity to excluded groups.

Inclusive growth not only generates economic opportunity, but also ensures equal access. Hence, growth is said to be inclusive when it allows all members of society to participate in, contribute to, and benefit from the growth process on an equal basis, regardless of individual circumstance (Ali and Zhuang 2007). This is a particularly relevant question for Nepal, where exclusion remains an important development hurdle (World Bank and DFID 2006).

This chapter assesses the inclusiveness of Nepal's recent economic growth and examines what factors helped certain groups of households escape poverty between 1995–1996 and 2003–2004. The findings of the analysis will assist policy makers in formulating measures to enhance the inclusiveness of growth and poverty reduction. The empirical analysis is based on data from the Nepal Living Standards Surveys conducted in 1995–1996 (NLSS I) and in 2003–2004 (NLSS II).

Introduction

Asian development between the 1960s and the 1980s featured rapid growth in the newly industrializing economies—Hong Kong, China; Republic of Korea (Korea); Singapore; and Taipei, China (later followed by several Southeast Asian economies) — and more sluggish growth in South Asia. Interestingly, though there were exceptions, low income inequality appeared to characterize both groups in comparison with developing countries in other regions, especially Latin America. However, since at least the 1990s, high rates of economic growth have become more common in the region, and it is widely believed that inequality has grown in many countries.

How correct is this perception, and how broadly does it apply to a region as diverse as developing Asia? This chapter brings together recent evidence on inequality in incomes and, especially, consumption expenditures. Clearly, incomes or expenditures are by no means all that goes into determining economic well-being, that is, an individual's access to goods and services. Educational and health status, political power, or access to justice, among others, are all important factors that contribute to economic well-being. Accordingly, the manner in which these other variables are distributed over a population is relevant to a study of inequality. However, this chapter's focus is on the distribution of economic well-being as captured through data on incomes and expenditures. (See Chapter 3 for a detailed examination of issues related to education and health.)

Introduction

Rapid growth in the People's Republic of China (PRC), which began as it embarked on economic reforms in the late 1970s, has been accompanied by rising income inequality. During 1985–2006, the country's real per capita gross domestic product grew at an annual average rate of 8.5%. Such strong growth led to an unprecedented reduction in the incidence of poverty, from 32.5% in 1990 to 7.1% in 2005, measured by the $1-a-day international poverty line (Ali and Zhuang 2007). However, the Gini coefficient of per capita income also increased, from about 0.30 in the early 1980s to about 0.45 in 2001 at the national level (Ravallion and Chen 2007).

The literature on income inequality in the PRC is extensive. Researchers have used three types of data: unit-level household survey data, aggregate income data, and grouped household survey data. Due to the absence of consistent data covering the entire PRC, studies based on unit-level data often focus on a particular segment of the population, such as urban households (Cao and Nee 2005, Meng 2004) or rural households (Gustafsson and Li 2002), for isolated years. Aggregate data, often at the provincial level, have been used to investigate the spatial dimension of inequality (Hussain and Zhuang 1994, Kanbur and Zhang 2005).

More recently, attempts have been made to study the PRC's income inequality by extrapolating unit-level data from grouped household income data. Notable examples are Ravallion and Chen (2007) and Chotikapanich et al. (2007).

Introduction

This chapter is an overview of non-income poverty and human development in Asia. This focus is justifiable not only from an ethical and moral perspective, but also pragmatically given the importance of these issues to political and social stability. As will be discussed, human development must be viewed as an end in itself and not just a means for attaining economic growth. Nevertheless, the extent to which economic growth has not been inclusive poses a threat to growth prospects in the region. Growing socioeconomic inequality often triggers crime and political and civil unrest. The growth elasticity of poverty also tends to be higher with higher levels of human development and lower levels of income inequality.

Section 3.2 discusses the concepts and measurement of non- income poverty and inequality. Section 3.3 summarizes broad trends in non- income poverty indicators while Section 3.4 examines inequality in non-income poverty indicators, both focusing on developing Asian economies. Section 3.5 explores the relationship between income and non-income poverty, and summarizes some empirical findings. Section 3.6 concludes with a brief discussion.

Concepts and measurement of non-income poverty and inequality

In broad terms, non-income poverty refers to dimensions that go beyond the traditional monetary and consumption-driven aspects of individual and societal well-being. Whereas it is important to know the level of consumption or income of individuals and countries, it is equally important to assess the attainment of non-income “human development” welfare indicators—such as nutrition, health, and education, among others—at a given level of income or consumption.

Introduction

Although average income has shown remarkable growth in the People's Republic of China (PRC) in the past few decades, income inequality has also increased noticeably in recent years. This increase has been subject to considerable research and concern. However, perhaps a more pertinent question for households and individuals over the longer run is not so much the disparity of income across households in a given year, but rather the degree of income mobility: would they be perpetually stuck in the lower economic rungs or would they have a reasonable chance to scale the economic ladder? The conventional use of annual income to measure income inequality may provide a misleading indicator of enduring income inequality in societies where there is considerable year-to-year income mobility. Income mobility may mitigate the impact of widening income inequality reflected in annual cross-section data over a longer period.

Studies on income mobility in the PRC are still relatively few. One reason is that income mobility can only be measured when panel data on individuals or households are available. An important aspect of this analysis is to use observations on income to determine the degree to which income inequality in a given year is smoothed through income mobility over time (Gottschalk 1997, Fields 2001). Nee (1996), one of the earlier studies on income mobility in the PRC, provides evidence that income mobility among rural households increased in the latter years of 1978–1989.

Introduction: The case for social protection in developing Asia

Broadly speaking, social protection refers to society's protection of its individual members from various lifetime risks. Some population groups, in particular the poor, are more vulnerable to such risks than others. Social protection usually takes the form of government programs such as labor market interventions, social insurance, and social safety nets. Among these, the modern cradle-tograve welfare state throughout developed countries firmly took root in the postwar era.

Until quite recently, conventional wisdom held that poorer countries could not afford social protection and that they should concentrate on achieving rapid economic growth. Such perception was shaped by the Washington Consensus that implied that poverty reduction naturally follows from growth (see, for example, Perry et al. 2006). The experiences of the East Asian miracle economies seemed to vindicate this line of thinking. Decades of uninterrupted economic growth lifted hundreds of millions out of poverty through trickle-down effects.

The devastating Asian financial crisis of 1997/1998, however, shattered the complacent notion that growth and growth alone guarantees poverty reduction, alerting regional governments to the importance of social protection. The economic impact of the crisis was severe and resulted in high unemployment and other social dislocations. In retrospect, a major silver lining of the Asian crisis was that, in its aftermath, governments across Asia began paying more attention and devoting more resources to social protection.

Introduction: What is inclusive growth?

While developing Asia has done remarkably well during the last 4 decades, achieved high growth, and reduced poverty significantly, Felipe and Hasan (2006) estimate that there are still about 500 million people unemployed and/or underemployed in the region. Perhaps for this reason during the last few years, terms such as “harmonious society” in the People's Republic of China (PRC), “sufficiency economy” in Thailand, and the like in other countries, have made their way into policy making discussions across Asia. The Indian government, for example, boasts of having fostered “inclusive growth”. By this it means that the budget has increased allocations to school meals or rural road-building (The Economist 2008). The message in all cases is similar: development is more than growth. The high-growth policies implemented across the region since the 1960s were successful and led to increases in per capita income and dramatic reductions in poverty; helping to close the gap with the developed world. But there is a feeling today that these policies have become obsolete and citizens in Asia demand more than growth. Issues such as inequality, the environment, health, or climate change are becoming increasingly important in the agendas of policy makers. Institutions such as the World Bank or the Asian Development Bank also acknowledge the issue and argue that growth and globalization have to be inclusive.

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).

Introduction

Economic growth in developing Asia in recent decades has been nothing short of impressive. For the region as a whole, per capita gross domestic product (GDP) in 2005 purchasing power parity (PPP) terms increased from $1,403 to $3,174 between 1990 and 2005, growing at an annual rate of 5.6%, a pace with few parallels globally and in history. This has led to substantial reductions in extreme poverty: the incidence of poverty measured at $1.25 a day declined from 52% to 27%, and at $2 a day from 79% to 54% (see Chapter 1). However, economic success on such a massive scale has not been uniform across the region. Growth has largely been driven by the People's Republic of China (PRC), India, and several Southeast Asian countries. In many parts of Asia, growth has been slow, increases in per capita income have been limited, and the incidence of extreme poverty remains high. In South Asia in 2005, for example, 43% of the population still lived below the $1.25-a-day poverty line and 76% lived on less than $2 a day. Whether and how lagging economies can catch up with the region's high performers remain a significant development challenge.

Globally, income growth has been effective in reducing absolute poverty, but less so in reducing relative poverty or inequality.