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Updated: December 28, 2010 12:03 IST

Exploring the growth-poverty nexus

Brinda Viswanathan
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South Asia has registered a remarkable economic growth in the past decade while being home to the largest number of poor in the world. This book tries to delve into this contrast as seen in Bangladesh, India, Pakistan, and Sri Lanka, although it is more focussed on India, the main contributor to this feature.

The book documents the disparities between the “leading” and the “lagging” regions, the latter being broadly defined as the states/provinces that have lower income growth rate and per capita income compared to their national averages. The nexus between growth and poverty is explored on the basis of quantitative analysis within a country and at the inter-country level. Directions for policy interventions are also provided. The economic policies pursued so far have benefited some regions more than the others. They need to be restructured if the widening spatial inequality in income and human development in South Asia, noticed over the past decade and a half, is to be stemmed early on.

For its level of growth, South Asia has poor educational attainment and health outcomes; more so in respect of females and the “lagging” regions. Neoclassical growth models indicate unconditional convergence arising from diminishing returns to physical capital so that regions with lower capital-labour ratio would grow at faster rates since returns on capital would be higher. Instead, divergence is more commonly seen arising from varying levels of initial investment and human capital and the performance of institutions. Conditional on similar values of these parameters, convergence is expected at a sub-national level.

A temporal analysis of regional growth is usually assessed on the basis of these convergence hypotheses. What is observed in South Asia is a lack of convergence of per capita domestic product, but there is convergence of per capita household consumption between its regions. Consequently, “regions with higher levels of poverty show greater absolute reduction in poverty rates.”

These main findings emerging from the first two chapters are followed by an examination of the factors that retard the growth of “lagging” regions. Dushyant Raju argues that, although there is regional convergence in primary education, the level of secondary education is much lower due to “lack of accountability on the supply side and lower returns to education on the demand side”. The other identified causes are: less secure property rights and lower access to institutional credit for setting up firms (Ana Fernandes, Maddalena Honorati and Taye Mengistae); lesser impact of trade liberalisation on poverty (Pravin Krishna, Devashish Mishra, and Asha Sundaram); and limited market access, allowing “firms and workers to locate in the leading regions” (Maarten Bosker and Harry Garretsen). It is suggested that economic integration of these countries through reduction in trade barriers and improved labour mobility could lead to an even spread of economic activity via industrialisation.

Lakshmi Iyer, Ejaz Ghani and Saurabh Mishra are of the opinion that fiscal, rather than administrative or political, decentralisation matters more for regional growth. In countries like India that have “explicit rules for redistribution,” the lagging regions do get a higher share of public resources, but their absorptive capacity and accountability need to be strengthened if service delivery is to improve.

The observation of Caglar Ozden and Mirvat Swadeh that migrants are more educated and better-off than non-migrants comes as no surprise. An assessment of internal mobility in relation to income growth across sub-sectors such as construction, manufacturing, and services would have enriched their analysis. Agriculture gets a special treatment in view of the larger concentration of rural poor in the lagging regions, and Ejaz Ghani and Surabhi Mittal call for “public investment that would boost land and labour productivity rather than subsidies” to stimulate agricultural growth, but they make no mention of land redistribution.

There are a few unsettling issues arising out of the suggestions provided in the book. For instance, given the imperative need to protect environmental interests, will the lagging regions have similar options to grow as the leading regions had? How could South Asia in general and the lagging regions in particular cooperate and take maximum advantage of the richness in traditional activities in agriculture, forestry, and handicrafts so that heterogeneous skills are deployed to achieve a more inclusive and environmentally less degrading growth? Overall, the book provides useful information on South Asia's growth process drawing comparisons at the international, national, and sub-national levels. It will be of interest to policymakers and scholars engaged in regional studies.

Keywords: EconomyGrowthPovertyAnalysis

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