Inclusive Growth Matters

April 25, 2014

Income inequality is considered one of the top five global risks in the World Economic Forum (“WEF”) annual Global Risks report. Structurally high unemployment and severe income disparity were described as potentially systemic in nature, ‘causing breakdowns of entire systems.’

We at the Center couldn’t agree more.

Center Chief Economist Dr. Yuwa Hedrick-Wong recently published the Emerging-Markets-Inclusive-Growth-Index (“IGI”).  The IGI is an impressive document, offering both a current snapshot and future roadmap for achieving inclusive growth for 60 of the most important emerging markets.

The top 10 IGI-ranked countries:

  1. Turkey
  2. Malaysia
  3. Argentina
  4. Costa Rica
  5. Romania
  6. Mexico
  7. Lebanon
  8. Bulgaria
  9. Thailand
  10. Botswana

It is an interesting list and one we will revisit in future posts. But given the recent buzz around income inequality, we thought it would help to provide some context and start with the basics:  Why does inclusive growth matter?

Inclusive growth matters because it is both the right and smart policy. Aiming for higher GDP growth does lower poverty, but sustained poverty reduction over the long term requires growth that is inclusive and broad-based.  So the moral imperative is clear. But inclusive growth also makes good economic sense.  As Dr. Hedrick-Wong writes, inclusive growth does not just help reduce poverty, it also creates “…rising social and economic mobility, and an expanding, dynamic and increasingly prosperous middle class.”

A growing middle class means more domestic consumption.  And more people buying goods and services helps local SMEs, which in turn drive innovation and attract investment. Taken together, these factors “…push governments to provide better leadership, to reform public institutions like the judiciary, curb corruption and improve the efficiency of the bureaucracy.” More efficient governments benefit businesses and individuals alike.

Dr. Hedrick-Wong importantly notes that inclusive growth also helps countries meet the twin challenges of demographics and the middle income trap.  Simply put, inclusive growth creates societies that are more equal and economies that are more productive, innovative, and resilient.

Download the Emerging-Markets-Inclusive-Growth-Index Article (PDF)


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