The Structural Anatomy and Institutional Architecture of Inclusive Growth in SSA Erik Thorbecke Keynote Presentation for UNU/WIDER Conference on Inclusive Growth in Africa, Helsinki, September 20-21, 2013
Introduction • Youth/Originality/Creativity • Age/Wisdom(?)/Experience/Syntheticity • Alan Guth’s Theory of Expansion of Universe • Creativity by Young Particle Physicist/Amateur Cosmologist: “I was so lucky because all the pieces were there”. • Wolfgang Pauli complaining about his loss of creativity: “Ach, I know too much”.
Content: 1. Anatomy of Growth ● What is Inclusive Growth in Context of SSA? • A Tale of Two Worlds: How Inclusive is Present SSA Growth Regime? • Structural Transformation in Generating Inclusive Growth in SSA • Interrelationship among Growth, Inequality and Poverty: * Pro-poor Growth * Pro-Growth Poverty Reduction • Does High Initial Poverty Retard Growth in SSA?
Content: 2. Architecture of Institutions Conducive to Inclusive Growth ● Architecture of Inclusive Institutions in SSA * Case for Social Protection and Labor Institutions (SPLs) * Desirable Features in Small Scale Agriculture, Infrastructure and Social Delivery Systems * Pillars (Preconditions) of Inclusive SPLs
Main Messages (before it is too late) • Emphasize Reverse Causality from Poverty Reduction to Growth • Recent Structural Transformation in SSA more Inclusive than in Past but Much More is Needed • Is there Something Different in the Anatomy of Growth in SSA than in other Developing Regions?
Main Messages • Not Clear that High Initial Poverty Retards Subsequent Growth in SSA • Is there an African Dummy and can we Elucidate its Elements? • Follow a Strategy of Pro-Growth Poverty Reduction in Selection of Inclusive Institutions • Such Institutions Exist and can be Designed to Fit SSA Context
Features of Inclusive Growth to Emphasize in SSA • Inequality of Income and Assets: Adopt Relative Definition of Pro-poor Growth. • Inequality of Opportunities: Essential to Achieve less Unequal Delivery of Social Services ( e.g. Education, Health) • Degree of Protection for Poor Needs to be higher because they are more Vulnerable • Employment, Employment…..
Tale of Two Worlds • Two Economic Camps: First Distinction : * Growth/Pro-active Government vs. * Growth/Minimalist Government * Sen: “… this Indian Administration thinks that the only thing that works is business.. that’s a disastrous position to take ”
Tale of Two Worlds * Bhagwati “ Sen’s position is mistaken and dangerous since money spent on government programs is largely wasted…India’s myriad problems have less to do with poor health and literacy than a poor investment climate .” • Let’s Call Sen’s Position “Growth with Government” (GG) and Baghwati “Growth is Enough” (GE)
Tale of Two Worlds • Second Distinction : How Inclusive is Present Growth Spell in SSA? The Glass is Seen as: * Half Full (HF) Camp: Quite Inclusive: Sola-i- Martin (2010), Young (2012), IMF (2012) * Half Empty (HE) Camp Not Inclusive Enough: AERC, Fosu (2012), AfDB (2012), Thorbecke (2013)…
Tale of Two Worlds • Large Overlap between HE and GG and between HF and GE Proponents World-wide However: • More Convergence between HE/GG World and HF/GE World in Context of SSA than Other Developing Regions • Recognition of Role of Government: Need for Social Protection & Labor Schemes, Policies & Institutions in Agriculture…
Some Facts to Judge IG in SSA • Remarkable Growth: 2.5-3.0 % p.c. GDP p.a. • Headcount Poverty 58% to 48%, 1996-2010 • Number of Poor Up: 349m.- 414m., 1996-2010 • Income Inequality very high • Only 28% of Labor Force has stable (formal) jobs, 63% vulnerable (informal) jobs • Unequal Distribution of Social Benefits
Anatomy of Growth: Structural Transformation *Successful vs. Flawed Structural Transformation *Until Early 2000’s Workers in SSA Pushed out of Agriculture rather than Pulled into more Productive non-Agriculture Jobs: Migration of Misery *Contrast Successful Asian ST with Flawed SSA ST Based on WDR/2008
Deviations from Normal Pattern for Ag Share of Labor Force, 1960-early 2000s
Structural Transformation in SSA 1960-2000 15
Flawed ST in SSA, Successful ST in Asia • See lower left Panel: Many almost Vertical Country Time Paths’ Arrows, Reflecting No GDP p.c. Growth yet large Fall in Ag Share of the Labor Force. • Contrast with Asia: Most Countries Followed “Normal” ST. Time Paths Reflecting Orderly and Productive Rural-to-Urban Migration. Time Paths’ Arrows Tend to be Parallel to “Normal” ST Trend Line (upper left panel)
Recent Structural Transformation during Current Growth Spell • I updated WDR/2008 Data Set • Sample of 14 SSA Countries, 2000-2011 • ST Appears more Normal for most Countries • Mali is only Case of Flawed ST • Botswana, Ghana, Liberia Reveal Rising Share of Ag. Employment out of Total Employment. Could Reflect Increasing Productivity within Ag. Sector
Recent Structural Transformation during Current Growth Spell • Tentative Conclusion: Present ST in SSA Relatively More Inclusive, Reflecting: * More Orderly & Productive Rural to Urban Migration Process * Changing Policy Environment in Ag. with some small increase in Ag. Productivity and Switch to Higher Value Crops * Yet Much More Needs to be Done
Anatomy of Growth: the Growth- Inequality-Poverty Nexus • The Interrelationship among Growth, Inequality and Poverty is Fundamental to Understanding the Structure and Dynamics of Growth and particularly Inclusive Growth • Process of Globalization (exogenous) and Country’s Development Strategy (endogenous) Affect Structure of Growth, Inequality and Poverty
Anatomy of Growth: the Growth- Inequality-Poverty Nexus • A Development Strategy Affects Poverty through a Number of Channels in Particular through the Growth and Distribution Channels. Poverty Outcome is Country (Setting-) Specific. • Bourguignon’s Growth-Inequality-Poverty Triangle.
Growth - + Classical + Globalization Openness Poverty Kuznets Modern - + + Distribution Trade (Inequality) Capital Labor Technology Knowledge 22
Impact of Globalization and Development Strategy on Growth, Inequality and Poverty Nexus 23
Anatomy of Growth: the Growth- Inequality-Poverty Nexus • Every Link of the Growth-Inequality-Poverty Nexus and Causal Chain has to be Explored. Links: • Impact of Globalization and Development Strategy on Structure of Growth and on Income Inequality. ◦ Contrast Effect of Kenyan Horticultural Exports with that of Nigerian Oil Exports • Impact of Growth on Inequality (Kuznets) ◦ Kuznets’ Law Essentially Dethroned
Anatomy of Growth: the Growth- Inequality-Poverty Nexus ● Impact of Inequality on Growth ◦ Two conflicting theories: ▫ Neo-classical (Kaldor): Inequality Good for Growth ▫ New Political Economy of Development: Inequality Reduces Future Growth ● Impact of Growth on Poverty ◦ Depends on Pattern of Growth: ▫ Pro-poor or Anti-poor
Anatomy of Growth: the Growth- Inequality-Poverty Nexus Impact of Poverty on Growth ◦ Ravallion (2012) finds that: 1. high initial poverty rates have sizeable negative impacts on the growth rate ; 2. it is high poverty not inequality that retards growth; 3. the growth elasticity of poverty reduction tends to be lower in countries with a higher initial level of poverty 26
Causality : From Growth to Poverty and/or Poverty-Reduction to Growth • From : Growth → Lower Inequality → Poverty Reduction ◊ Pro-Poor Growth • From : Poverty Reduction → Lower Inequality → Higher Growth ◊ Pro-Growth Poverty Reduction 27
Examples of Vicious Circles Triggered by Initial Poverty (Perry et al, 2006) • Poor People have limited access to credit and many other markets under-invest • Poor People often suffer from poor health low productivity, low income • Poor people tend to attend low quality schools low human capital • Can at least some of these vicious circles be converted into virtuous circles? 28
Conceptual and Empirical Case for Pro- Growth Poverty Reduction • Figure 4. Impact of Poverty Reducing Institutions on Inclusive Growth and Income Distribution 29
Conceptual and Empirical Case for Pro- Growth Poverty Reduction ● Trigger Point of Institutional or Policy Intervention under Pro-Growth Poverty Reduction Strategy is Aimed at Reducing Poverty Directly. ● Trigger Point of Institutional or Policy Intervention under Pro-Poor Growth Strategy is on Changing the Structure of Growth. 30
Conceptual and Empirical Case for Pro- Growth Poverty Reduction (PGPR) • Case and Rationale for PGPR: • Ravallion (2012): High initial Poverty Rates have sizeable negative impacts on growth rate. Hence lowering Poverty directly can unleash the Growth Process. • Evidence that Institutions (Programs) Exist that while Directed towards Poverty Alleviation ALSO Contribute to Growth. 31
Does High Initial Poverty Retard Growth? • Endogeneity Issue: High Poverty ↔ Low Growth High Poverty → Low Growth Ravallion: “Finding that higher initial poverty rate implies a lower subsequent growth rate… is robust to allowing for the possible endogeneity”
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