Background

The concept of inclusive growth can be traced as far back as the original conceptions of economic development or growth as a development outcome from the late 1950s to the early 1970s. The idea was pioneered by Kuznets (1955)[1], who argued that inequality only increases temporarily during the early stage of growth but diminishes when the productive sectors expand as development matures. The notion of development in this approach required state coordination of large-investment projects, including public ownership of key sectors. This approach was presumably essential to deliver rapid growth, employment creation, macroeconomic stability and a sustainable balance of payment which in turn reduce poverty through the process of trickle-down. In the mid-1970s, there was an increasing realisation that rapid economic growth was accompanied by continuing poverty and rising inequality in many countries.

In late 1970s and early 1980s the ‘Washington Consensus’ stressed the critical role of the free market in promoting development, contending that the role of the state in governing resources was inefficient and bred corruption. However, the role of the state in economic development was later acknowledged as a remarkable success factor in the industrialisation of newly industrializing economies such as Japan, South Korea, Taiwan, Singapore and Hong Kong, challenging the Washington Consensus through state roles in protectionism, direct financing of economic development and industrialisation, and other major departures from the free market. This re-thinking led to the ‘Post-Washington Consensus’, which acknowledged the significance of market imperfection, and the potential impact and outcome of differences and changes in institutions.  Subsequently, this approach too was criticised in the 1990s and early 2000s because of its theoretical inconsistencies, cases of weak macro-economic performance and recurrent crises in poor countries.

In the early 2000s, the ‘pro-poor’ policy framework came into focus, drawing on heterodox macroeconomic traditions and other critical approaches to development economics. Developing countries including those in Asia during this period experienced rapid economic growth which led to a dramatic reduction in the level of extreme poverty during the 2000s; at the same time, rising inequalities persisted. This provided the conditions for the emergence of the inclusive growth paradigm in the late 2000s with its focus on both creating economic opportunities and ensuring opportunities were accessible to all.

Inclusive growth and its relevance and importance to GMS-DAN member institutes and countries

Inclusive growth builds on two mutually reinforcing concepts. First, high rates of sustainable growth will create and expand economic opportunities, while broader access to these opportunities will ensure that members of the society can participate in and benefit from growth. Development is inclusive when growth is sustainable and accompanied by considerable reduction of poverty. Traditionally, GMS countries have placed ‘the poverty reduction goal’ high in their development agendas, which also implies the pursuit by these countries of more inclusive growth, but with variations in development strategies and challenges between them.

Like its neighboring GMS countries, Cambodia has experienced remarkable growth during the last decade, except for the twin crises in 2008 and 2009. Growth has been high and rapid, accompanied by substantial reduction in poverty. However, inequality has risen during the last decade, creating concern over equitable distribution of prosperity in this nation, which implies the inclusive nature of such development outcome, required in-depth analysis of the issue. Growth is perceived to be inclusive in this country if only majority, if not all, members of the society can participate in and benefit from this growth.

In the People’s Republic of China (PRC), the government has made the creation of a harmonious society, a concept closely related to inclusive growth, as the top priority in its 11th Five Year Plan. The idea has also been used in recent remarks by Chinese President Hu Jintao in late 2010, which sparked speculation that Chinese policy makers are refining their perspective on development to include this notion, and the term “inclusive growth” is expected to figure prominently in the 12th Five Year Plan (2011-2015). Despite considerable decline in poverty, this suggests the government realises the potential problems associated with rising inequality in the Chinese society over the past decades, as evidenced through the rising Gini coefficient from 0.21-0.27 three decades ago to 0.47 in 2009 (Xinhua, 2010).[2]  

In Thailand, growth with equity is one of the elements of its “Sufficiency Philosophy”, which underpins government development efforts. Poverty decreased from 17.5 percent in 1998 to 8.1 percent in 2009, but inequality, as measured by the Gini coefficient, rose from 0.413 in 1998 to 0.535 in 2009 (World Bank 2011). Analysts have linked this to the recent political unrest in Thailand, as a reflection of the country’s unbalanced growth and its contribution to social and economic inequality. To tackle the problem, the government has carried out broad national reforms focusing on decentralisation and sustainable growth. The government has set up a National Reform Committee to study the reform agenda over 2010-13. In line with that, the ADB is working with the committee and the Ministry of Finance on the Economic and Social Reforms toward Inclusive Growth for 2011. The outgoing government’s embrace of the concept reflects its importance and relevance to tackling social inequality, a commitment likely to be sustained by the new government elected in July 2011.

This theme is also found in Vietnam’s socio-economic development strategy, which advocates “quick and sustainable development, economic growth in parallel with implementation of initiatives, social equity, and environmental protection”. Since its first renovation process, known as Doi Moi in 1986, with the goal of adopting market mechanisms and preserving social inclusion, tremendous progress has been made in various sectors. Poverty has notably decreased, very rapidly, from 56 percent 1995 to 10 percent in 2010. It has been speculated that Vietnam will complete its transition to a market economy and will have laid the foundations of a middle income country over the next decade. However, there are doubts about whether or not the foundations will be strong enough to keep growth sustainable and inclusive as the Gini coefficient was 0.357 in 1993, rising slightly to 0.378 in 2006 (ADB 2010)[3].

Like other GMS countries, the Lao PDR economy has performed fairly well during the last two decades with the average annual GDP growth rate of 7.0 percent during 1990-2009 (ADB 2010). The poverty rate also went down remarkably from 45 percent in 1993 to 27.6 percent in 2008, while inequality measured by Gini coefficient went up slightly from 0.304 in 1992 to 0.367 in 2008 (World Bank 2011)[4]. The rising inequality as poverty has declined suggests that growth has not been equitably distributed or inclusive. This deserves more cautious and thorough investigation and indicates the relevance of the concept to Lao government strategic development strategies and programs.

Inclusive growth is also being embraced by many development partners in developing countries including both bilateral and multilateral aid agencies, particularly the ADB in support of GMS countries, international organisations, non-government organisations, and the development research community. The theme then of inclusive growth, in its sub-regional and regional integration context, is of central relevance government-development partner-private sector cooperation in meeting the current development challenges of the GMS countries, along with the research community and civil society.

The ADB and inclusive growth

“Inclusive growth” and “inclusiveness” have also become increasingly fundamental to the ADB and its programmes, including its GMS programme. The ADB’s Charter stresses its commitment to ‘contributing to the harmonious growth of the region’, with ‘inclusive social development’ one of the strategic pillars of its Enhanced Poverty Reduction Strategy, and a core strategic area of intervention in the ADB’s Long-term Strategic Framework (2001-2015). Additionally, the ADB’s new Strategy 2020 emphasises its long-term vision of an “Asia and Pacific region free of poverty by 2020”, which will be achieved through the promotion of growth that is inclusive, that is environmentally sustainable, and draws on the region’s increasing levels of cooperation and integration. This raises specific issues and challenges for the GMS countries, three of which are least developed countries (LDCs).

The ADB has characterised inclusive growth as incorporating two mutually reinforcing ideas – that high rates of sustainable growth will create and expand economic opportunities, and that broader access to these opportunities will ensure that members of society can participate in and benefit from growth. The ADB’s Strategy 2020 also stresses that, without proper attention and planning, it will become increasingly difficult for growth to reach the impoverished who remain excluded by circumstance, poor governance, and other market-resistant obstacles. This underlines the importance of development strategies and programmes that contribute to a positive enabling environment to achieve the goal of inclusive growth. However what this actually means for the different countries, economies and societies of the GMS, and the ADB’s GMS programme, remains ‘under-researched’.

GMS-DAN 2011-14 Research Programme: Stage I and II

In the course of its analysis of lessons learned from its recent research collaboration, and an assessment of priority issues for the GMS, GMS-DAN has proposed ‘inclusive growth and sub-regional integration’ as a priority emerging issue that should be its broad research theme for 2011-14, with two stages of research and associated research outputs within this theme. Stage I research study initially provides an assessment of the current state of inclusiveness of growth in the GMS while the research findings from stage one will be used in stage II as a roadmap for a deeper investigation of inclusive growth in the GMS countries. The in-depth research study in stage II will address the questions on the key national policy and institutional changes required to achieve growth inclusiveness in the GMS and the role of sub-regional or regional cooperation in the process of overcoming the obstacles identified and the contribution of sub-regional or regional cooperation to reducing inter-country disparities and closing development gaps.

Stage I: An assessment of the current state of inclusiveness of growth in the GMS

The overall objective of the research project is to assess the current state of inclusive growth in the GMS in order to build knowledge and understanding of the issue as well as to inform public policy. The specific objectives are to:

1) identify key variables employed to measure the state of inclusiveness of growth in the GMS
2) identify main obstacles to overcome in achieving greater inclusion and poverty reduction in the GMS

Stage II: Inclusive Development in Health and Education in the GMS: The Role of National Policy and Institutions

The overall objective of the research project is to examine how the role of policy and institutional changes are required to achieve inclusive development in the GMS. The specific objectives are to:

1) identify and analyze current key national policies and institutional arrangements which support  inclusive development in health and education in the GMS
2) identify key areas for improvement or changes in the current national policies and institutional frameworks in order to achieve more development inclusive in health and education in the GMS

Country team

Country

Name

Position

Institute

Cambodia

Dr Srinivasa Madhur

Director of Research & GMS-DAN Project Team Leader

Cambodia Development Resource Institute (CDRI)

Mr Lun Pide

Research Fellow & GMS-DAN Coordinator

CDRI

Mr Roth Vathana

Research Associate

CDRI

Lao PDR

Dr Leeber Leebouapao

Director General

National Economic Research Institute (NERI)

Ms Amphaphone Sayasenh

Researcher

National Economic Research Institute (NERI)

Ms Phetsamone Sone

Deputy Director, Economic Statistics Division

Lao Statistics Bureau (LSB)

Thailand

Dr Srawooth Paitoonpong

Senior Research fellow

Thailand Development Research Institute (TDRI)

Dr Jirawat Panpiemras

Research fellow

TDRI

Vietnam

Mrs Nguyen Thi Kim Dung

Senior Researcher

Central Institute for Economic Management (CIEM)

Mr Tran Trung Hieu

Researcher

CIEM

Mr Do Son Tung

Researcher

Vietnam Institute of Economics, VASS

Yunnan, China

Dr Wen Shuhui

Deputy Dean

Faculty of Management and Economics, Kunming University Science and Technology (FME, KUST)

Ms Xiong Bin

Associate Professor

FME, KUST

References:

[1] Kuznets, Simon (1955), “Economic Growth and Income Inequality”,  American Economic Review, 45 (1), pp.1−28

[2] Xinhua (2010), “Inclusive Growth, a Development Perspective in China”, http://www.chinadaily.com.cn/china/2010-10/13/content_11405073.htm

[3] ADB (2010), “Key Indicators for Asia and the Pacific 2010”, www.adb.org/statistics

[4] World Bank (2011), “World Development Indicator’s Online Data”, http://databank.worldbank.org/ddp/home.do?Step=12&id=4&CNO=2

Background
China’s development success has attracted a groundswell of avid attention on a global scale. Over the last three decades, it has witnessed dramatic economic transformation, rapid development and greater involvement in regional and global economic and political affairs. Such magnificent achievements in such a huge country also evoke global concerns as to whether China’s economic and political expansion may squeeze out small, poorer countries or bolster some other parts of the world. Also due to its greater economic interdependency, China’s phenomenal transition will likely have profound social, political and economic impacts on countries in ASEAN and the GMS in particular.
Countries in the GMS are close to China and located in the highly dynamic region that has great potential to develop providing that win-win cooperation and partnerships are in place. To countries like Cambodia, Laos and Vietnam, China has become an enormous consumer of certain products, an investor and a donor. Among other things, China’s hunger for resources has seen land provided to China for its agribusiness ventures or exploration of minerals.

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