Inclusive Growth in Asia: The Recent Record

The basic economic growth and poverty reduction data assembled and used for this analysis are given in Tables 1 and 2. Comparable data were available for only 10 Asian countries for the period 1990–1996, while data for 15 Asian countries were assembled for the period 2000–2008. The analysis was undertaken for these two intervals, and excluded 1997–1999 due to a discontinuity in some datasets in 1997–1998. In particular, the format and nature of variables reported in the detailed statistical tables accompanying the UNDP Human Development Report underwent changes in these years. Nonetheless, the abnormal conditions brought about by the East Asian financial crisis in those years may provide a good reason to omit that crisis period from the trend analyses.

3.1 Reduction in Income Poverty with Growth, 1990–1996

Table 1 [ PDF 45.4KB | 1 page ] reflects poverty data in 1990–1996 as income poverty headcount for both rural and urban areas (except for the PRC where urban poverty data were not reported), derived from the annual UNDP Human Development Reports. The table relates poverty reduction with average annual real GDP growth rates computed from data compiled in the 2008 ADB Key Indicators for Asia and the Pacific. Because estimates of the HPI were not available before 1998, the analysis for the period 1990–1996 could only be undertaken using the traditional income poverty measure.

Based on rate of rural poverty reduction with economic growth, Bangladesh, Indonesia, and Republic of Korea (hereafter Korea) emerge as the Asian countries where income growth was accompanied by the strongest poverty reduction in the 1990–1996 period. Their respective PEGs indicated an elastic response of poverty reduction to economic growth, with poverty declining more than 1% for every 1% of GDP growth (i.e., magnitude of PEG>1). Nepal and the Philippines were also relatively strong performers during the period, with poverty declining commensurately with economic growth (i.e., PEG magnitudes close to unity). Malaysia was a moderate performer, while India, Pakistan, PRC, and Thailand had slowest progress, with the last two actually showing rising rural poverty during the period, and therefore having positive PEGs.

The Thailand experience in this period is noteworthy given the relatively rapid pace of economic growth it experienced in that period. It was apparently this perceived weakness of progress on poverty reduction accompanying such rapid growth that spurred the Thai government to highlight social development starting with its 8th National Economic and Social Development Plan for 1997–2001. The Eighth Plan “introduced a new paradigm in Thailand's national development to recognize human beings as the center of development. Focus (is) on holistic development of human potentials in physical, intellectual, and spiritual aspects, including popular participation of all development partnerships for the sake of selfsufficiency at community and local levels” (Boonchit and Natenuj 1998).⁷ By the Ninth Plan, the Thai government had begun referring to their 5-year development plans as the National Social and Economic Development Plan, to emphasize the primacy of the social over the economic dimension of development.

3.2 Improvement in Income-Based and Multidimensional Poverty, 2000–2008

Table 2 [ PDF 49.4KB | 1 page ] looks at the 2000–2006 period, and derives PEG based on income poverty using the US$1.25-a-day yardstick (World Bank 2008), and average annual GDP growth rates derived from data compiled in the ADB Key Indicators series. Wider availability of comparable country data after 2000, including on the UN's multidimensional HPI, makes possible the inclusion of 15 countries in the analysis of the period 2000–2008.

The strongest performers in this more recent period are Indonesia, Pakistan, and PRC, all with elastic poverty reduction responses to economic growth. Malaysia, Thailand, and Viet Nam are also strong performers, with PEGs exceeding 0.6. Bangladesh, Nepal, and Sri Lanka had moderate reductions in income-based poverty with economic growth, while Cambodia, India, Mongolia, and the Philippines had the weakest performance, with the last two actually seeing an increase in poverty even as their economies grew.

Table 3 [ PDF 46.1KB | 1 page ] compares the PEG rankings based on income poverty between the two periods, and shows deterioration in the performance of Bangladesh, Nepal, and the Philippines, with the Philippines (along with Mongolia) falling into a perverse trend of rising poverty even with a growing economy (hence PEG>0). On the other hand, there was a dramatic turnaround in the performance of Pakistan and the PRC, both of which moved from positive (i.e., perverse) PEGs in the 1990s to elastic PEGs with the right sign in more recent years.

The PEGs computed on the basis of a multidimensional poverty indicator (HPI-1) for the Asian countries are shown on Table 4 [ PDF 49.5KB | 1 page ]. With poverty measured multidimensionally using the HPI, the strongest performers in poverty reduction with economic growth in recent years have been Malaysia, Singapore, Thailand, and Viet Nam. These countries had elastic responses (PEG>1), indicating a more than proportionate reduction in the multidimensional HPI for every 1% rise in real GDP. Nepal had a near-unitary elasticity, while Cambodia, Mongolia, Pakistan, and PRC also had PEGs exceeding 0.5 in absolute value. Poverty reduction accompanying economic growth was relatively weak in the Bangladesh, India, and the Philippines, and was weakest in Indonesia, Myanmar, and Sri Lanka. Between 2000 and 2005, the Philippines and Sri Lanka actually saw a rise in poverty as measured by the HPI-1.

Table 5 [ PDF 47.6KB | 1 page ] compares the PEG values and rankings in the 2000–2006 period under alternative definitions of poverty.⁸ It is noteworthy that defining poverty more holistically to capture nonincome dimensions significantly changes the picture, particularly on a cross-country basis. It is remarkable how Indonesia moves from the top of the list based on income poverty to the opposite end near the bottom once poverty is defined multidimensionally. Aside from Indonesia, other countries whose relative standings change markedly with a multidimensional definition of poverty are Mongolia, Pakistan, and Sri Lanka, and to a lesser extent, the Philippines and PRC. In the case of Mongolia and the Philippines, a more positive picture emerges once poverty is defined multidimensionally, as the perverse positive sign of the PEG disappears with this more holistic poverty definition.

These results suggest that in these countries, there is weak correlation between income level and human welfare indicators, particularly in education and health which are the two elements additionally accounted for by the HPI. In the case of Indonesia and Pakistan, the evidence suggests that strong improvement in reducing income-based poverty after 2000 has not translated into similarly strong improvement in education and health status of the people, particularly the poor. Similarly, the moderate pace of income poverty reduction that accompanied economic growth in Sri Lanka did not translate into a commensurate improvement in non-income welfare indicators for the poor. On the other hand, the increase in income poverty incidence in Mongolia and the Philippines was mitigated by improvements in non-income based welfare indicators. This outcome suggests that the government may have been relatively successful in delivering education and health services to the incomepoor, particularly in Mongolia where the turnaround resulting from the broader definition of poverty is more dramatic.

Comparing country performances across the two decades and considering the redefinition from income-based to multidimensional poverty (Table 6 [ PDF 51.8KB | 1 page ]), Thailand and Malaysia emerge as having exhibited most dramatic progress in translating economic growth to poverty reduction.⁹ Both countries moved from the lower half of the list in the 1990s to top positions in the list in the 2000–2006 period. In the case of Thailand, deliberate efforts to prioritize social development starting in the late 1990s, as embodied in its five-year development plans, appear to have paid off well. The same situation in the 1990s had prompted Malaysia to devote a relatively larger portion of public expenditures to education and health in the 2000–2007 period (as seen in the analyses below, and as evident in Table 10 [ PDF 52.4KB | 1 page ]). This and other deliberate efforts to strengthen social safety nets in Malaysia have clearly yielded positive results contributing to the above outcome.¹⁰

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