How can South Asia unlock its untapped potential?

South Asia remains the fastest growing emerging market and developing economy region in the world. In fact, growth is now on track to be higher than anticipated six months ago, helped by strong domestic demand in India and faster recoveries in most other South Asian countries.

Undoubtedly, the outlook for the region is promising.

Yet, South Asia could still grow faster. Our latest South Asia Development Update focuses on two areas of untapped potential: the integration of more women into the region’s workforce, to benefit from the progress made in access to education, and greater openness to investment and trade, to benefit from the rearrangement of global value chains currently underway.

No economy can realize its full potential when half its population is hindered from realizing their own.South Asia has made remarkable progress in establishing equality of access to educational opportunities for women and men, but too many women in the region stay out of the labor force after graduation or following marriage. 

Only one-third of working-age women in the region currently participate in the workforce. This is well below the three-quarters of South Asian men in the labor force and the 54 percent average for women in emerging markets and developing economies.

Unsafe transport, lack of childcare, and limited freedom of movement impede South Asian women’s social and economic mobility and confine many to informal-sector roles with poor remuneration. Legal frameworks in South Asian countries—from business registration processes to inheritance laws—are among the least favorable to working women globally. And South Asia has some of the most conservative gender attitudes in the world.

As a result, female labor force participation rates in South Asian countries (except Bhutan) are 5 to 25 percentage points lower than in countries at similar levels of economic development.

Creating new opportunities for more South Asian women to work and earn an income would benefit society at large. Raising the participation rate of women to equal that of men could boost per capita incomes in the region by as much as 51percent. 

To make this a reality, we will need contributions from all of society. Governments can enact and enforce legal reforms to improve gender equality. Firms can create more jobs that are open to women. Communities can challenge harmful gender norms, encouraging greater equality and acceptance of women working outside the home. In several places, this is already happening. If we can turn this into broader trends, South Asia’s economic prospects would be even brighter.

The second major opportunity for South Asia to increase its long-term growth potential comes from the ongoing shifts in global value chains. Investors worldwide are seeking locations with low geopolitical risks and strong economic fundamentals, and the region, especially India, is well-placed to benefit. However, for this to happen, trade and investment policies need to change. 

The region has among the highest tariff and non-tariff barriers and among the lowest shares of trade in aggregate output. Protective trade and investment policies shelter some domestic firms from competition and obstruct others from accessing foreign inputs. This raises firms’ costs and delays the adoption of productivity-enhancing new technologies. It may also reduce the effectiveness of complementary industrial policies aimed at supporting the emergence of strong, internationally competitive champions.

An open palm can hold more rice than a closed fist. In the same spirit, opening up labor market opportunities to women and global trade and investment opportunities to firms would help unlock South Asia’s considerable potential for increased sustainable growth.