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Income inequalities and the rules of the game

Elina Scheja's picture

Yesterday I attended a seminar organized by the Growth Commission on “Ingredients for Successful Growth Strategies – Equity, Globalization and Leadership” chaired by Otaviano Canuto. As a part of the opening remarks Nobel laureate Michael Spence made it clear that inclusiveness is an integral part of any growth strategy and a necessity for achieving high levels of growth. In (on average) middle income countries where income inequalities are pronounced one finds two economies operating simultaneously:  the upper class resembles OECD economies characterized by low levels of growth, while the poorer majority live in a low-income economy with little resources to grow. As a result, the economy as a whole grows at a suboptimal level until these two groups can be remerged and the middle-class is re-established.

The New Normal? South Asia Looks East

Dipak Dasgupta's picture

The world South Asia will face after this crisis is not going to be the same as in the past. The trend that is accelerating after the financial crisis is that of the “new normal”: the shift in traditional engines of growth from industrial countries to emerging markets.

The crisis is accelerating this fundamental change in economic order in which developed countries have to save more and spend less, while emerging markets, such as China, India, Indonesia, Brazil, Russia, and South Africa begin to play much bigger roles in driving the global recovery. According to our estimates, by 2020, in just ten years---Asia may see its share of world GDP (in nominal dollars) climb to over one-third, replacing North America and the European Union as the biggest region. Underlying this is an expected sharp rise in shares of China and India, and indeed, that of all emerging markets may climb to nearly one-half of global output.

Is South Asia Moving Up?

Dipak Dasgupta's picture

The food, fuel, and financial crises during the last three years sent shockwaves throughout the world and its effects rippled across South Asia. It impacted growth, causing a reduction of growth by nearly 3% from the peak of 8.9% in 2007 to 6.3% in 2009, led to job losses, declines in stock market value, decreases in tourism, and increasing pressures on already weak fiscal, balance of payments, reserves and exchange rates.

I was based in New Delhi during the crisis, and the effects were palpable. For a moment, it looked as if confidence was ebbing---the construction cranes in Gurgaon (the fastest-growing township around Delhi) became silent, a young scholar at Delhi University ran a survey of what graduates might do as job markets became difficult, airlines ran half-empty and racked-up massive losses, jobs were lost heavily in diamond-cutting in Gujarat and IT firms stopped hiring in Bangalore, and people paused to consider the implications of such a dramatic change from the accelerating and heady growth of the previous years. But despite the circumstances, and thanks to strong and prompt government actions, confidence has swiftly returned, the region has proven to be quite resilient and a noticeable resurgence has taken hold.

Migration and Remittances in Inclusive Growth Analytics

Elina Scheja's picture

Even though migration brings about large overall gains globally, whether or not it has a positive impact on growth in a given country has caused more controversy in the empirical literature. The answer depends on the country specific circumstances, and the type of the study. Often the analysis is limited to one specific aspect of migration ignoring the other, possibly more influential indirect channels through which migration impacts growth dynamics. A holistic context specific analysis is needed to inform the policy choices that set up the most favorable conditions ensuring that migration dynamics contribute to an inclusive growth process.

One of the most influential current frameworks for context-specific growth analysis has been the Growth Diagnostics by Hausmann, Rodrik and Velasco. This framework has been further adjusted for inclusive growth diagnostics by Sida and the World Bank. The main difference between traditional and poverty reducing growth diagnostics is that the inclusive analysis takes the individual rather than the firm or the economy at large as the analytical starting point, and argues that the way for sustainable and inclusive growth goes through productive employment. Finding ways to enhance individuals’ ability to participate in, contribute to, and benefit from growth through productive self- or wage employment becomes the focus of the analysis.

Is there a middle class in Asia? Depends on how you define it

Vikram Nehru's picture

A colleague from the Asian Development Bank visited the other day to talk about a study he is doing on Asia’s middle class.  Yet this is not an area we have focused on in the World Bank’s East Asia region – perhaps at our cost.  I quickly googled the topic and discovered a rapidly growing literature, including a paper each by Martin Ravallion and Nancy Birdsall

South Africa: Growth Acceleration Bodes Well for 2010 (World Cup?) Prospects

Theo Janse van Rensburg's picture

In light of the GDP figures released on 25 May 2010, which indicated that growth accelerated further to 4.6% in 2010q1 (from 3.2% in 2009q4), this short note provides a brief analysis of the implications for GDP growth in calendar 2010 as well as for the South African Government’s Budget Review growth forecast.

The Singaporean Economy: Lessons for Post War Sri Lanka

Chathurika Hettiarachichi's picture

“There was no secret, we had no choice but to take chance and sail into rough waters”- Lee Kuan Yew

Singapore is an inspiration to Sri Lanka and other developing countries in terms of economic development, political stability, and good governance. Since 1967, it has increased its per-capita purchasing power (PPP) 10-fold to $44,600 in 2007, surpassing countries such as Switzerland’s PPP ($37,300) in 2007. Singapore also has high demographic development compared to Sri Lanka even though both countries were about even in 1960s. The President, Lee Kuan Yew, navigated the Singaporean economy after gaining independence in 1965. With a population of over 5 million, Singapore maintains a market driven guided economy with diversity in cabinet and government.

What was their secret to success?

At independence in 1965, the economy was met with unemployment problems, an unskilled workforce, few entrepreneurs, no domestic savings, wretched housing conditions, militant labour unions and racial riots. They devised a strategic economic plan; developing entrepot (commercial) trading, export driven manufacturing, and then creating a service based knowledge economy.

Africa's Pulse: Now is the time to invest in Africa

Herbert Boh's picture

Africa's Pulse, a new publication highlighting economic trends and the latest data in sub-Saharan Africa, launched on Friday with a clear message: this is the time to invest in Africa.

At the launch, World Bank Africa Chief Economist Shanta Devarajan explained that, "although Africa was the hardest hit by the crisis, its recovery has been so remarkable that we could be at the beginning of what history will describe as Africa’s decade."

The outlook isn't all rosy, of course. With the global financial crisis halting the steady rate of growth in the region, Africa will now likely miss most of the Millennium Development Goals (MDGs) by their 2015 deadline, despite the remarkable progress. n estimated 7-10 million more Africans were driven into poverty and about 30,000-50,000 children died before their first birthday because of the crisis.

Europe and Central Asia facing a slow recovery

Sameer Vasta's picture

April 23, 2010. Washington DC - World Bank/IMF Spring Meetings . Europe and Central Asia regional press briefing. Philippe Le Houerou, Regional Vice President for Europe and Central Asia. Photo: © Simone D. McCourtie / World Bank

At a press briefing earlier today at the Spring Meeting, Philippe Le Houérou, World Bank Vice President for Europe and Central Asia, spoke of how the region has faced the greatest fiscal pressures among all the world's regions during the global economic crisis.

20 out of 30 countries in Europe and Central Asia have experienced a decline in GDP in 2009, and Le Houérou remarked that the region will face a slow recovery in the year ahead:

"2010 is going to be a tough year for the Region with growth projected at around 3 percent.  The prospects for 2011-2013 are only slightly better.  Rising joblessness is pushing households into poverty and making things even harder for those already poor."


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