Pro Poor Growth

Manmohan Agarwal Centre for International Governance Innovation*

* This research is part of a research project supported by the ORF.

Outline

• What Helps the Poor• Progress in reducing Poverty• Problem is now mainly in S. Asia and Africa

Europe : Where did the Poor Go

• Migration External and Internal• External migration to new settlements that

reduced labour supply and raised wages.• Along with labour capital flowed to raise level

of economic activity in these lands• Internal rural to urban where productivity

higher. Fewer rural workers allowed consolidation and mechanization that raised labour productivity

The Developed Process of Development

• At the beginning labour productivity higher in non-agriculture than in agriculture

• Initially during growth the gap in productivity increased

• Only later it started decreasing; where it started decreasing is called the turning point.

Today’s Developing Countries

• Large Scale external migration infeasible• But migration in playing a role. Remittances make

growth sustainable by preventing BOP crises• However, no uniform growth pattern among

developing countries today• There are significant differences among the regions

of Latin America, Africa (Sub-Saharan) and Asia, though there are differences also among South and East Asia.

•

Pattern of Growth

• Rate of Growth • (Annual Average)• 1981-90 1990-05 2006-08 2009• East Asia 6.0 6.4 8.5 5.0• S. Asia 3.5 3.6 6.0 5.0• L. A. 0.2 1.4 3.4 -3.2• Africa -1.1 0.3 3.7 -1.0

Nature of Growth

• VA/L 2009 (1980= 100) agriculture non-agriculture Ratio• East Asia 240.5 (3.1) 513.5 (5.8) .47• South Asia 157.3 (1.6) 240.5 (3.1) .65• Latin America 187.5 (2.2) 73.5 (-1.0) 2.56• Africa 119.7 (0.6) 68.7 (-1.3) 1.74• High Income 349.4 (4.4) 141.6 (1.2) 2.47• Source Lele, Agarwal, Timmer and Goswami, 2012

The Growth Process

• VA/L increasing in Asia.• But increasing much more rapidly in non-

agriculture so that gap in productivity rising.• As yet very slow movement of labour out of

agriculture so that the residuals are positive.• In Latin America and Africa increasing in

agriculture but decreasing in non-agriculture.

Unique Features of the Growth Process

• Korea and Japan had followed the traditional pattern and residuals had been very small.

• But currently difficult to provide sufficient productive jobs in non-agriculture

• In Latin America and Africa per worker value added declining.

• This is not because moving to more labour intensive industries after liberalization.

Where are the Poor(millions)

• 1981 1990 2005• East Asia 1071.5 873.3 316.2• South Asia 548.3 579.2 595.6 • Latin America 47.1 49.6 45.2• Africa 212.2 297.5 388.4• Total 1899.8 1818.4 1373.7

Share of Population (%)

• 1981 1990 2005• East Asia 56.4 48.0 23.0• South Asia 59.4 51.7 40.3• Latin America 12.9 11.4 8.2 • Africa 53.4 57.6 50.9• Total 52.1 41.8 25.3

Progress mainly in E. Asia and some in S. Asia.

Growth and Poverty Reduction

• Rate of fall in Poverty • (Annual Average) • 1981-90 1990-2005• East Asia 1.8 (.30) 4.8 (.75)• S. Asia 1.5 (.43) 1.6 (.44)• L. A. 1.4 (7) 2.2 (.64)• Africa 0.8 (.07)

To meet target SA must more than double growth of PCY between 2005 and 2015 or raise elasticity.

What helps the Poor

• Growth• Pro Poor Growth. This implies improving access

of the poor to resources.• Better land distribution after war and revolution

did that in many Asian economies. Also growth of labour intensive manufactures.

• Better income distribution• Special programmes targeting the poor.• Different regions require different strategies

Poverty in Latin America

• Reduced poverty despite low growth.• Better distribution, as lower urban rural disparity.• This might be as VA?L rising/in agriculture but falling

in non-agriculture. • Severe problems of access. But no small holder

agriculture so question of access to land does not arise.

• Simple Improvement of education facilities does not help as wages high and so not competitive in labour intensive industries

Poverty Reduction in Latin America

• Immediate future growth will be lower• Limited scope for labour intensive

manufacturing or small holder agriculture.• Need special programmes of two kinds• One is safety nets. Lift 14.3 m to reach poverty

reduction target . • This would cost $6530 or .16% of GDP. Tax

revenues are over 20% of GDP.

Special Programmes

• A second kind of special programmes will improve skills of workers since will need to move up the skill chain as wages are higher.

• Also poverty in accessible pockets.• Improve their accessibility by improving

transport .• Also consider facilitating their migration.

Poverty in Asia

• Poverty in Asia decreasing especially E. Asia where rapid increase in VA/L.

• Little evidence that reduced inequality. But increased elasticity needs examination.

• Rural urban gap increasing.• Not enough jobs being created.• In East Asia more of the same seems answer.• In South Asia trend towards less access. Needs to be

reversed. Working of capital markets may be particularly important here.

Africa

• Africa has seen the least reduction in poverty.• Has lagged in growth and elasticity is low.• VA/L has grown very slowly in agriculture and has

declined in non-agriculture.• There has been higher growth in recent years with

higher investment.• This needs to be continued and even better

accelerated.• Land being sold or leased so less smallholders which

could be detrimental to pro poor growth.

Effect of Crisis

• Growth in S.E. Asia had slowed after financial crisis . Only Indonesia is now recovering after a decade.

• Slower growth has slowed poverty reduction. But elasticity has increased. Question is why?

• After current crisis effect less catastrophic.• But slower growth creates special problems

for S. Asia and Africa.

South South Cooperation

• The South is becoming more important in the international economy

• South’s share of incremental has increased as also its share of trade.

• Also more of trade with other developing countries• South-South capital flows also increasing.• South-South economic relations have helped.• Improved South-South cooperation can help to

maintain growth and pace of poverty reduction.

Conclusions

• No single answer.• A number of things have to be done and

depends on particular situation.• Access to resources is important.• In many cases need special programmes to

enable the poor to participate in the market. • Broad recipes known. Trick is to apply them to

specific cases.