In an article in VoxEU, Jalles and de Mello argue (related paper in Review of Development Economics) that episodes of inclusive growth are more likely to occur where human capital is high, tax-benefit systems are more redistributive, productivity grows more rapidly, and labor force participation is high. Trade openness and a range of institutional factors, including political system durability and electoral regimes, also matter. They define inclusive growth as increases in GDP per capita without a concomitant deterioration in the distribution of household disposable income.
In fact, data from the World Bank World Development Indicators show that inclusive growth is not a rare event: between 1980 and 2013, there are 268 episodes of increases in GDP per capita without an associated deterioration in the distribution of household disposable income in the sample of up to 78 countries for which information is available. These episodes include, for instance, France between 1985 and 1989, Germany between 1995 and 1997, Brazil between 2004 and 2006, and India between 1998 and 2000.
[…] In an average episode, real GDP per capita grows at about 3.3% per year, and the Gini coefficient of household disposable income falls by about 0.8 over the same period. While duration does not seem to have much influence on the magnitude of changes in real GDP per capita during inclusive growth episodes, the reduction in the Gini coefficient tends to be more pronounced in episodes that last four years or less.
They argue that inclusive growth episodes are more likely to occur where:
- Population is better educated
- Tax-benefit systems are more redistributive
- Labor force participation and multifactor productivity growth are higher
- Economies are more open to trade
- Share of population working in industry is higher
- Durable political systems exist with regular parliamentary elections and electoral regimes based on proportional representation (not exactly durability of governments per se though)
- Some degree of fiscal decentralization exists
But then, inclusive growth episodes are less likely where:
- Inflation is high
- Output growth is more volatile
- Unemployment is widespread
- Financial deepening is more (higher probability of banking and financial crises occurring)
So, redistribution through tax-benefit systems, human capital accumulation, and a sound macroeconomic framework seem to be important for inclusive growth. However, note that results may change slightly depending on the definition of inclusive economic growth. For instance, some define inclusive economic growth (prosperity) as the annualized growth in average real per capita consumption or income of the bottom 40 per cent. Others define it as rapid and sustained economic growth, access to education and health opportunities, and social protection.
