Inclusive Growth. Miguel Niño-Zarazúa UNU-WIDER

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1 Inclusive Growth Miguel Niño-Zarazúa UNU-WIDER

2 Significant poverty reduction since 1990s Latin America Percentage of people living on less than $1.25 USD fell from 47% (2bp) in 1990 to 24% (1.4bp) in 2008 South-Eastern Asia Southern Asia sub-saharan Africa

3 Economic growth, critical for poverty reduction A 1% increase in GDP growth will reduce, on average, the poverty rate by 2%, in a range from 0.6% to 3.5%

4 Growth, also importance for Divergence GDP PPP per Capita $40,000 $30,000 $20,000 $10,000 African countries have moved fast since 2000 China s achieved in 30 years what the UK achieved in more than 600 years in terms of economic progress Cross Section in the 2000 Mexico, $8165 China, $5332 India, $2990 $0 Ethiopia, $ ~ Year UK USA

5 Poverty persists, but where are the poor now? People living on less than $1.25 USD a day (2005 PPP) % of global poverty Low-income Countries Middle-income Countries

6 BUT Inequality remains a major challenge 40 Advanced economies 65 Middle and Low Income Countries ZA LUX FIN BEL DNK SWE NOR FRA CAN DEU JPN NLD AUS NZL AUT ISR PRT ESP USA GBR ITA GRC IRL BOL THA PER ZAM MDG COL CIV BRA CHL MEX JOR KEN CHN NIG GHA ARG PHL MOR SEN UKR POL IND MAL TZA UGA BGR EGY PAK IDN ROU HUN Source: UNU-WIDER s World Income Inequality Database

7 Heterogeneous trends in between-region inequality Income gap between country groupings Constant 000 US$ (2005 PPP) Gap between highand low-income countries Gap between highand upper-middle income countries Inequality measured by mean-log deviations of income Latin America sub-saharan Africa East Asia South Asia

8 Why should we worry about inequality? How much a 1% rise in parents income would improve children s expected income? Earnings elasticity The higher the elasticity, the lower the social mobility 2010 United States 1985

9 Clues for inclusive development and social mobility Macro Fundamentals Micro determinants Instrumentals processes Macroeconomic stability Political stability Openness to trade Investment in agriculture industrial policies Low population growth Food and Nutrition Access to Health care and Education Horizontal equality Access to finance, including ODA Sustained growth Structural transformation Physical infrastructure Employment generation Good quality public goods Progressive fiscal policies Social Protection

10 The role of fiscal policy 50 General Government Revenue as % of GDP Europe Asia Latin America sub-saharan Africa

11 Sources for financing inclusive growth Revenues from Natural resources in low income but resource rich countries challenges: Extractive industries are capital intensive, with marginal impact on employment Not well integrated to the rest of the economy Governance and transparency issues Medium-term fiscal policy objectives Rises in VAT earmarked for expenditures on the social sectors Anti tax-evasion policies What role for redistribution? What marginal tax rate on the rich would be necessary to eliminate the normalised aggregate poverty gap? Note: MTR: proportion of tax paid for each additional income unit earned at the highest income threshold 11

12 MTR needed to eliminate the poverty gap Zambia Uganda Swaziland Sierra Leone Senegal Rwanda Nigeria Niger Mali Malawi Lesotho Guinea-Bissau Guinea Ghana Gambia Ethiopia Central African Republic Burkina Faso Cameroon Tanzania Burundi Mozambique Madagascar Cote d'ivoire Botswana South Africa Source: Niño-Zarazúa etal (2012)

13 The Cost of Social Protection MIC spend less than 1% of GDP on social transfers LICs African countries: 3-5% GDP Old age pension as % GDP Child benefits as % GDP Unemployment scheme as % GDP Transfer package as % GDP Revenues -grants as % GDP Transfer package as % Revenues -grants Net ODA as % GDP Transfer package as % net ODA Guinea 0,6 1,5 0,3 2,8 15,6 17,7 7,5 36,9 Burkina Faso 1,1 2,8 0,6 5,2 13,1 39,5 12,5 41,3 Ethiopia 1,0 2,8 0,6 5,1 12,0 42,2 12,6 40,3 Tanzania 1,1 3,1 0,6 5,5 17,3 31,9 11,4 48,5 Senegal 1,1 2,0 0,5 4,1 19,6 21,1 8,0 51,7 Kenya 0,9 3,0 0,6 5,2 20,8 24,9 3,9 131,3 Cameroon 0,8 1,8 0,4 3,5 20,0 17,3 2,2 154,0 International Labour Organisation (2008)

14 Some points for discussion What does the present distribution of global poverty mean for the new Global Development Agenda? Shall we focus on poor countries or poor people? What about fragile states? How should the international community address the concerns of inequality? What could countries like Sweden do to support a more inclusive process of economic growth in developing countries?