Income gap in Asia threatens growth, stability – ADB

African, Latin American and Caribbean countries experienced a decline in inequality, but in Developing Asia, 82% of population lived in countries that experienced increases in inequality

MANILA, Philippines – In the last 2 decades, Asia’s rapid growth has lifted over 700 million people out of poverty but millions are being left behind and the widening gap between rich and poor threatens to undermine the region’s growth and stability, said the Asian Development Bank (ADB) on April 11.

Its Asian Development Outlook 2012 report found that inequality widened in 11 of 25 economies in Developing Asia.

Had inequality remained stable over the past 2 decades, 240 million more people, or about 6.5% of developing Asia’s 2010 population, could have risen out of poverty said ADB. 

“Inequality can weaken the basis of growth itself. High and rising inequality can curb medium-term growth by reducing social cohesion, undermining the quality of governance, and increasing pressure for inefficient populist policies,” the report warned.

ADB looked at rising levels of inequality in terms of the Gini coefficient, where 0 represents complete equality, 1 represents complete inequality and 0.4 represents the alert line where cities and countries should begin addressing inequality. 

From the early 1990s to the late 2000s, Asia’s overall Gini coefficient rose from 0.39 to 0.46.

In comparison, Developing Asia had a lower average Gini coefficient than other regions of the developing world, including Sub-Saharan Africa, Latin America and Caribbean. 

The cause for alarm was that most Sub-Saharan African countries and more than half of Latin American and Caribbean countries experienced a decline in Gini, while in developing Asia, nearly 82% of the population lived in countries that experienced increases in Gini. 

How to confront inequality

ADB noted several policy shifts that could correct inequality in the region including:

  1. More spending on education and health, particularly for poorer households
  2. Broadening the tax base by reducing deductions and incentives for people and corporations to allow government to mobilize more revenue
  3. Increasing spending on social safety nets to mitigate the risk of personal and environmental calamities
  4. Removing barriers to migration within a country so members of the population can access more suitable jobs, superior infrastructure and social benefits in more prosperous areas
  5. Transferring more of the pool of large rural and agricultural laborers into the manufacturing and service sector, which would give people less vulnerable employment
  6. Encouraging small and medium enterprises by government providing information, technical support and vocational training, while removing unnecessary and cumbersome restrictions
  7. Buffering unemployment through a government introduced public employment scheme to hire temporarily those satisfying certain conditions and willing to work on small infrastructure projects 

The regional outlook and hiccups on the horizon 

The good news is commodity price pressures are subsiding and inflation is  expected to slow to 4.7% in 2012 and down to 4.4% in 2013.

ADB expects Asia to continue growing steadily and average 6.9% growth in 2012 and 7.3% in 2013.

The report targeted the European sovereign debt crisis as a source of risk that could impact Asia’s relatively high growth rates. ADB President Haruhiko Kuroda wrote, “The eurozone crisis highlights the need for developing Asia to rebalance its economies toward domestic and regional demand and from dependence on exports destined for advanced countries.”

He also said the crisis “provides added urgency to efforts to broaden and deepen regional cooperation, reduce trade barriers, and promote intraregional trade.”

He pointed to the “widening disparity in the region between the ‘haves’ and ‘have nots'” as perhaps the “greater threat to developing Asia’s long-term growth and stability.” 

He said bridging the gap with equal access to technology, education, infrastructure and investments would be key. –

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