February 10, 2009 The purpose of this note is to define the meaning of the term ‘inclusive’ growth. It is often used interchangeably with a suite of other terms, including ‘broad-based growth’, ‘shared growth’, and ‘pro-poor growth’. The paper clarifies the distinctions between these terms as well as highlights similarities.
The paper argues that inclusive growth analytics has a distinct character focusing on both the pace and pattern of growth. Traditionally, poverty and growth analyses have been done separately. This paper describes the conceptual elements for an analytical strategy aimed to integrate these two strands of analyses, and to identify and prioritize the country-specific constraints to sustained and inclusive growth.
Defining Inclusive Growth
Rapid and sustained poverty reduction requires inclusive growth that allows people to contribute to and benefit from economic growth. 1 Rapid pace of growth is unquestionably necessary for substantial poverty reduction, but for this growth to be sustainable in the long run, it should be broad-based across sectors, 2 and inclusive of the large part of the country’s labor force. 3 This definition of inclusive growth implies a direct link between the macro and micro determinants of growth. The micro dimension This note was prepared by Elena Ianchovichina (PRMED) and Susanna Lundstrom (PRMED) with input from Leonardo Garrido (PRMED). The note was requested by donors supporting the Diagnostic Facility for Shared Growth. We thank Carlos Braga, Vandana Chandra, Edgardo Favaro, Loga Gnanasambanthan, Harry Hagan, Fernando Hernandez, Eduardo Ley, Lili Liu, Elina Scheja, and Juan Pedro Schmid for their useful comments on earlier drafts. 1 This statement is in line with the OECD Development Assistance Committee’s policy statement on propoor growth. However, a difference between pro-poor and inclusive growth is that the pro-poor approach is mainly interested in the welfare of the poor while inclusive growth is concerned with opportunities for the majority of the labor force, poor and middle-class alike. 2 Imb and Wacziag (2003) show that countries diversify over most of their development path. Countries start specializing quite late in the development process, and the turnaround point occurs at a robust level of income per capita (around constant 1985 $10,000). They conclude that increased sectoral specialization applies only to high-income economies. It is important to note that some countries may not broaden their economic base as they develop due to their specific economic conditions (e.g. small states). 3 Encouraging broad-based and inclusive growth does not imply a return to government-sponsored industrial policies, but instead puts the emphasis on policies that remove constraints to growth and create a level playing field for investment.
captures the importance of structural transformation for economic diversification and competition, including creative destruction of jobs and firms.
Inclusive growth refers both to the pace and pattern of growth, which are considered interlinked, and therefore in need to be addressed together. The idea that both the pace and pattern of growth are critical for achieving a high, sustainable growth record, as well as poverty reduction, is consistent with the findings in the Growth Report: Strategies for Sustained Growth and Inclusive Development (Commission on Growth and Development, 2008). The commission notes that inclusiveness – a concept that encompasses equity, equality of opportunity, and protection in market and employment transitions – is an essential ingredient of any successful growth strategy. Here we emphasize the idea of equality of opportunity in terms of access to markets, resources, and unbiased regulatory environment for businesses and individuals. 4 The Commission on Growth and Development (2008) considers systematic inequality of opportunity “toxic” as it will derail the growth...