Inclusive Development

Inclusive development considers whether development progress is sufficiently widespread for the majority of a population to benefit

The World Bank has a particular focus on the economic capabilities, freedoms and resilience of the bottom 40 per cent of the World’s population and the relatively poor in individual countries.

Per capita incomes can rise but simultaneously there can also be an increase in the scale of relative poverty

The inter-generational nature of development progress also needs to be considered – i.e. creating an environment fit for future generations.

One of the defining debates in development economics is the extent to which state intervention enables inclusive growth or whether a dynamic private sector offers greater potential for lifting development progress.

Inclusive development – some key indicators

1. Median household incomes rather than mean incomes
2. Income & consumption inequality (using the Gini coefficient / Palma ratio)
3. Percentage of the population at risk of extreme poverty
4. Gender Parity in Labour Force Participation
5. Productive and secure employment v vulnerable work
6. Financial exclusion - access to financial services, vulnerability to high interest lending
7. Access to affordable and reliable electricity
8. Access to basic and digital infrastructure (addressing the digital divide)
9. Scale of social protection (broad notion of welfare assistance / safety nets)
10. Risk of economic exclusion based on gender, race, caste, ethnicity, religion, age, occupational status, location, and disability status
11. Exposure to and ability to adapt to the effects of climate change

Median and mean measures of per capita income and consumption

Average or mean-based measures of income, such as GDP per capita, will always be higher than the median — the value at the midpoint — of that distribution, which is inevitably skewed to the right.

Consider the data below taken from World Bank research

International Poverty Lines

• In October 2015, the World Bank updated the international poverty line to $1.90 a day
• But from 2018 onwards it has added two new international poverty lines
• A lower middle-income International Poverty Line is set at $3.20/day
• An upper middle-income International Poverty Line, set at $5.50/day

Strategies to drive inclusive development

Developmental state:

• Provision of / access to / improved quality of core public goods and merit goods
• Housing, early years education, interventions to tackle malnutrition, road infrastructure, ID systems
• Labour market protections including employment rights, minimum wages, union recognition
• Raising sufficient tax revenues to provide welfare + building progressivity into tax system
• Laws to protect property rights – especially in urban areas – getting mega cities right is key!

Potential from private sector innovation:

• Impact of foreign direct investment – how inclusive?
• Expansion of AI/ machine learning / drones to improve productivity
• Micro-finance (credit, insurance, savings), expansion of social enterprises (Yunus et al)
• Private sector as a catalyst for inclusive innovation e.g. Fintech, renewable energies

Role of overseas aid and social capital

• Social capital - people sometimes use social ties to create insurance networks.
• Project aid (e.g. DFID and M-Pesa in Kenya and other countries)
• Randomized controlled trials with basic income (Kenya is a good current example)

Evaluating pro-poor (inclusive) development policies

• Fundamental debate over the efficiency and efficacy of the state over the market in delivering key services
• Growing debate over direction of trade & investment policy i.e. commitment to globalisation or move towards a more closed system including protectionism, capital controls, managed currencies
• Ever-present risk of government and regulatory failures
• But risks too from non-intervention – deeper partial and complete market failures that can undermine competitiveness, growth and development
• How much inequality is a) inevitable and b) tolerable in society?
• IMF (2018) “Much has been written about the relationship between inequality and economic development, but theory remains inconclusive."