Understanding inclusive growth: Role of good governance and institutions

Inclusive growth is one of the most talked about issues in developing countries, especially those in transition, these days. It has been pretty much widely accepted that growth alone is not sufficient; it has to be followed by wider access to economic opportunities and provision of social protection for those left out of the growth process.

ADB has come up with a framework for inclusive growth, which has three main components:  (i) High and sustainable growth; (ii) Access to economic and social development opportunities; and (iii) Stronger social protection. It also has a list of 35 indicators to quantify (either directly or via proxies) inclusive growth.

The policies for inclusive growth are supported by good governance and institutions, which are quantified by looking at two components of Worldwide Governance Indicators (voice and accountability, and government effectiveness) and the corruption perception index. The information and data in this blog come from ADB’s FIGI 2012 and the related dataset (Nepal only; for other countries, see this one).

 

GOOD GOVERNANCE AND INSTITUTIONS	1990 or Nearest Year		2010 or Latest Year
Voice and accountability	−0.1	(1996)	−0.5
Government effectiveness	−0.4	(1996)	−0.8
Corruption Perceptions Index	2.2	(2010)	2.2	(2011)

The first two components of WGI are presented in standard normal units of the governance indicator, ranging from –2.5 to 2.5 with higher values corresponding to better governance outcomes. In the CPI, scores relate to perceptions of the degree of corruption and ranges from 10 (very clean) to 0 (highly corrupt).

Fiscal decentralization and FDI inflows

Here (ungated version here) is an abstract from an interesting paper on fiscal decentralization and foreign direct investment in India and China. Yong Wang argues that “endogenous policies toward FDI are favorable only when both central and local governments benefit”. Fiscal decentralization has a non-monotonic and significant impact on FDI.

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A political-economy model is developed to explain why fiscal decentralization may have a non-monotonic effect on FDI inflows through endogenous policies. Too much fiscal decentralization hurts central government incentives, whereas too little fiscal decentralization renders the local governments vulnerable to capture by the protectionist special interest groups. Moreover, the local government's preference for FDI can be endogenously polarized; therefore, a small change in fiscal decentralization across certain threshold values may lead to a dramatic difference in equilibrium FDI inflows. Empirical investigations support that the difference in fiscal decentralization is an important reason for the nine-fold difference in FDI per capita between China and India. Cross-country regression results also support the inverted-U relationship.

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Inverted-U relationship between FDI per capita and fiscal decentralization (measured by sub-national government’s overall revenue share).

China’s central and local governments are more aggressive in enticing FDI inflows than India’s. China’s central government encourages FDI inflows by offering fiscal incentives (tax holidays and tariff waiver on imported inputs to foreign-invested firms). Furthermore, the local governments as well offer favorable policies (simple license application, lower fees for land use, provision of infrastructure, etc).

Understanding inclusive growth: Stronger social protection

Inclusive growth is one of the most talked about issues in developing countries, especially those in transition, these days. It has been pretty much widely accepted that growth alone is not sufficient; it has to be followed by wider access to economic opportunities and provision of social protection for those left out of the growth process.

ADB has come up with a framework for inclusive growth, which has three main components:  (i) High and sustainable growth; (ii) Access to economic and social development opportunities; and (iii) Stronger social protection. 

It also has a list of 35 indicators to quantify (either directly or via proxies) inclusive growth. This follow up to an earlier blog post sheds some light on the third pillar of inclusive growth, i.e. stronger social protection.

It focuses on stronger social protection to prevent extreme deprivation and reduce the effects of shocks. It components include strengthened:

• Labor market policies and programs
• Social insurance programs
• Social assistance and welfare schemes
• Child protection programs
• Disaster management
• Public sector management

The table below shows the quantifiable indicators for the third pillar of inclusive growth.The information and data in this blog come from ADB’s FIGI 2012 and the related dataset (Nepal only; for other countries, see this one).

Social protection	1990 or Nearest Year		2010 or Latest Year
Social protection and labor rating	3.0	(2005)	4.0	(2011)
Social security expenditure on health as a percentage of government expenditure on health	3.6	(2001)	4.6	(2009)
Government expenditure on social security and welfare as a percentage of total government expenditure	3.1	(1995)	3.2	(2011)

In the social protection and labor component, a rating of “1” corresponds to a very weak performance, and a “6” rating to a very strong performance.

Understanding inclusive growth: Access to economic and development opportunities

Inclusive growth is one of the most talked about issues in developing countries, especially those in transition, these days. It has been pretty much widely accepted that growth alone is not sufficient; it has to be followed by wider access to economic opportunities and provision of social protection for those left out of the growth process.

ADB has come up with a framework for inclusive growth, which has three main components:  (i) High and sustainable growth; (ii) Access to economic and social development opportunities; and (iii) Stronger social protection. 

It also has a list of 35 indicators to quantify (either directly or via proxies) inclusive growth. This follow up to an earlier blog post sheds some light on the second pillar of inclusive growth, i.e. access to economic and social development opportunities.

The second pillar emphasizes broader access to economic and social development opportunities, especially for the poor and disadvantaged. Its components include improvements in:

• Basic services including health, education, water and sanitation, and electricity
• Urban development for the poor
• Rural development
• Inclusionary reforms
• Public sector management

The table below shows the quantifiable indicators for the second pillar of inclusive growth. The information and data in this blog come from ADB’s FIGI 2012 and the related dataset (Nepal only; for other countries, see this one).

Social Inclusion to Ensure Equal Access to Economic Opportunity	1990 or Nearest Year		2010 or Latest Year
Access and Inputs to Education and Health
School life expectancy (primary to tertiary) years	8.8	(2000)	8.9	(2002)
by Sex
Male	10.0	(2000)	9.9	(2002)
Female	7.5	(2000)	7.9	(2002)
Pupil-teacher ratio (primary)	39		30	(2011)
Diphtheria, tetanus toxoid, and pertussis (DTP3) immunization coverage among 1-year-olds  percent	43		82
by Residence
Urban	...		93	(2006)
Rural	...		88	(2006)
Urban-to-rural ratio	...		1.1	(2006)
by Wealth Quintile
Lowest	...		75	(2006)
Highest	...		96	(2006)
Highest-to-lowest ratio	...		1.3	(2006)
Physicians, nurses, and midwives per 10,000 population	...		6.7	(2004)
Physicians	...		2.1	(2004)
Nurses and Midwives	...		4.6	(2004)
Government expenditure on education as a percentage of total government expenditure	14.0	(1995)	17.9	(2011)
Government expenditure on health as a percentage of total government expenditure	4.1	(1995)	7.2	(2011)
Access to Basic Infrastructure Utilities and Services
Population with access to electricity percent	15.4	(2000)	43.6	(2009)
by Residence
Urban	...		89.7	(2008)
Rural	...		34.0	(2008)
Urban-to-rural ratio	...		2.6	(2008)
Share of population using solid fuels for cooking  percent	88.3	(2001)	83.3	(2006)
by Residence
Urban	39.1	(2001)	39.1	(2006)
Rural	94.1	(2001)	92.3	(2006)
by Wealth Quintile
Lowest	...		100.0	(2006)
Highest	...		31.3	(2006)
Population using improved drinking water sources  percent	76		89
by Residence
Urban	96		93
Rural	74		88
Population using improved sanitation facilities  percent	10		31
by Residence
Urban	37		48
Rural	7		27
Gender Equality and Opportunity
Gender parity in education
Primary	0.63	(1991)	0.86	(2002)
Secondary	0.46	(1991)	0.89	(2006)
Tertiary	0.33	(1991)	0.40	(2004)
Antenatal care coverage of at least one visit  percent of live births	15.4	(1991)	58.3	(2011)
by Residence
Urban	...		84.6	(2006)
Rural	...		37.5	(2006)
Urban-to-rural ratio	...		2.3	(2006)
by Wealth Quintile
Lowest	...		17.7	(2006)
Highest	...		84.1	(2006)
Highest-to-lowest ratio	...		4.8	(2006)
Antenatal care coverage of at least four visits  percent of live births	8.8	(1996)	29.4	(2006)
by Residence
Urban	...		51.9	(2006)
Rural	...		26.0	(2006)
Urban-to-rural ratio	...		2.0	(2006)
by Wealth Quintile
Lowest	...		11.0	(2006)
Highest	...		60.0	(2006)
Highest-to-lowest ratio	...		5.5	(2006)
Gender parity in labor force participation (Aged 15 and over)	0.88		0.92	(2011)
Percentage of seats held by women in national parliament	6.1		33.2	(2012)

In the next blog post, I will share information about the third pillar of inclusive growth (stronger social protection).