Summary and Conclusions

This study set out to examine the reasons why patterns of poverty reduction accompanying economic growth have varied so widely across Asia. At the same time, it sought to enrich the growth-poverty analysis by employing a more holistic measure of poverty for the analysis, recognizing the limitations of the simple income-based measure of poverty. Cross-section data across 15 Asian countries point to the significant effect of governance, public expenditures in social services, and sectoral composition of GDP growth on the inclusiveness of economic growth, in that order of strength of effect.

The policy directions implied by these results include the following:

• Initiatives and investments toward strengthening the quality of governance could be the most important measures a country can take toward attaining inclusive growth, as governance is a critical underlay to all initiatives of government to reduce poverty and promote broad-based growth and development. The recent trend for conscious consideration of governance by the international development institutions both as a prerequisite and as an object in defining the shape of development assistance is thus well placed. As already stated, improvement in the quality of governance would not only enhance the inclusiveness of economic growth, but also directly promote economic growth itself.
• Public investments in education, health, and housing are important—and indeed most tightly correlated—to the attainment of inclusive growth. Economic growth by itself, especially when driven by economic sectors with low employment potential, will not guarantee poverty reduction, as borne out by the experience of Pakistan and the PRC in the 1990s and Mongolia, the Philippines, and Sri Lanka in the past decade. In the face of the current global economic downturn, when fiscal stimulus has been a common prescription for reinvigorating the economy, such stimulus spending would be best directed toward improving the heath, education, and housing status of poor citizens. However, it is equally important to ensure that stimulus spending is not undertaken at the expense of fiscal sustainability, as experience has shown (e.g., in Indonesia and the Philippines) that a heavy debt burden will crowd out such crucial public investments in the future.
• Enhancing the role of agriculture in the growth of the economy continues to have a positive impact on the inclusiveness of growth, particularly in reducing rural poverty. The obvious key to the role of agriculture is the employment it generates in the rural areas. But this suggests that promotion of rural enterprises in general, including in manufacturing and services, would be instrumental in the attainment of more inclusive, broad-based growth. New emerging rural-based enterprises that promise to provide such opportunities include ecotourism and agribased manufacturing. Small and medium enterprise (SME) promotion and development would thus be a complementary thrust that would help achieve such expansion of rural enterprise and employment. Governments would do well to address the traditional obstacles faced by SMEs, i.e., access to finance, technology, raw materials, and markets.

The study also points to the need for governments and international development institutions to go beyond income as the primary yardstick for poverty. Results of the analysis showed how dramatic differences in characterization of countries can result when a multidimensional poverty measure is employed rather than a unidimensional one based only on income or expenditure. Thus, as governments or development institutions use poverty as a resource allocation tool, they would do well to find and employ an appropriate poverty indicator that adequately reflects its multidimensional nature.

Future research could enrich this analysis further by maximizing the use of the wide array of data increasingly becoming available to development researchers. The simple analysis undertaken in this study can be extended in two directions: (i) toward construction of a panel data set for Asian countries, to permit a richer cross-country analysis that includes multiple observations over time within individual countries, and (ii) toward development of an even more comprehensive measure of multidimensional poverty applicable to Asian countries, to go beyond the dimensions addressed by the UN Human Poverty Index, which remains confined to income, health, and education status (to additionally address political empowerment, cultural, and security dimensions, for example). There remains wide scope for promoting inclusive growth or growth that reduces poverty, and this hinges ultimately on researchers being able to use all information to understand poverty and its dynamics better.

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