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Money Can’t Buy Equality

Otaviano Canuto's picture

South Asia has been one of the world’s success stories in terms of rapid economic growth. With India leading the way, South Asia’s poverty rate has fallen from 60 percent in 1981 to 40 percent in 2005. However, during the same period, the number of poor people—those living on less than $1.25 per day—actually increased from 549 million to 595 million over the same period. What’s more, social indicators such as gender parity, secondary education enrollment, and health have not improved in line with growth.

So how do we account for this apparent paradox? Conventional wisdom suggests that growth is sufficient for poverty reduction and social progress, but is this the case in South Asia? Perhaps not, says Ejaz Ghani, Economic Advisor in the World Bank’s South Asian region and author of “The South Asian Development Paradox: Can Social Outcomes Keep Pace With Growth?” the most recent in the Economic Premise research series.

“The paradox of South Asia is that growth has been instrumental in reducing poverty rates, but poverty rates have not fallen enough to reduce the total number of poor people,” explains Ghani. And as the total number of poor people expands, he is quick to warn, “Human development, particularly education and health, has not kept pace with income growth. And growth has not been gender inclusive.”

Resolving this paradox is crucial since South Asia has more poor people than Africa. In fact, the geography of poverty means that more than 70% of the world’s poor live not in low-income countries, but in middle-income countries—a concentration pattern that is likely to continue into the next decade.

Therefore, I am inclined to agree with Ghani that policy makers should not think of growth separately from social development. Only when social disparities are taken head-on, and when improvements in gender parity, education, health and other vital social outcomes are not just viewed as second stage reforms, will true development take place. To see how South Asia stacks up against other countries, and to read more about the underlying causes of income and social disparities in the region, I recommend taking a look at this week’s Economic Premise.