Pro Poor Growth

1. Pro Poor Growth Manmohan Agarwal Centre for International Governance Innovation* * This research is part of a research project supported by the ORF.

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

3. 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

4. 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.

5. 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.

6. 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

7. 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

8. 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.

9. 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.

10. 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

11. 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.

12. 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.

13. 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

14. 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

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.