A  Compara)ve  Analysis  of  Inequality  across  Asian  Countries  

Guanghua  Wan  万广华  

1  

Asia’s  high  growth  has  led  to  large  reduc)ons  in  poverty…  

7.0  3.7   3.4   2.4  

28.2  

9.7  5.7  

1.5  0  

5  

10  

15  

20  

25  

30  

Developing  Asia   Sub-­‐Saharan  Africa   LaAn  America  and  Caribbean  

Middle  East  and  North  Africa  

GDP  growth  and  poverty  reduc)on  

GDP  growth  (1990-­‐2010),  %  

ReducAon  in  poverty  rate  (1990s-­‐2000s),  percentage  point    

2  

…but  was  accompanied  by  rising  inequality  in  many  countries  •  Inequality  increased  in  countries  accounAng  for  more  than  80%  of  Asia’s  populaAon  

•  Gini  coefficients  worsened  from:  – 32  to  43  in  the  PRC  – 33  to  37  in  India  – 29  to  39  in  Indonesia  

•  Taking  developing  Asia  as  a  single  unit,  its  Gini  coefficient  went  from  39  to  46  

3  

Gap  between  rich  and  poor  is  widening  

4  

0  

5  

10  

15  

20  

25  

BHU   PRC   IND   INO   PAK   PHI   SRI  

Expenditure  shares  (%)  

Top  5%   Top  1%  

•  Richest  1%  of  Asian  households  account  for    6–8%  of  total  expenditure  

•  Top  5%  in  most  countries  get  nearly  20%  of  total  expenditure  

BHU=Bhutan;  PRC=People’s  Republic  of  China;  IND=India;  INO=Indonesia;  PAK=Pakistan;  PHI=Philippines;  SRI=Sri  Lanka  

Rising  inequality  involved  an  income  shiH  from  the  poor  to  the  richest  

5  

3.9  

7.1  

4.8  4.1   4.3  

5.1   4.8   4.5  4.7  

8.9  

5.7  6.6  

5.9  

9.6  

6.9  

4.8  

0  

2  

4  

6  

8  

10  

12  

BAN   GEO   IND   INO   LAO   PRC   SRI   TAJ  

Quin)le  ra)os,  countries  with  rising  inequality  

1990s   2000s  

BAN=Bangladesh;  GEO=Georgia;  IND=India;  INO=Indonesia;  LAO=Lao  PDR;  PRC=People’s  Republic  of  China;  SRI=Sri  Lanka;  TAJ=Tajikistan  

Both  within  and  between-­‐country  inequality  rose  

0.19  0.24  

0.05  

0.10  

0.00  

0.05  

0.10  

0.15  

0.20  

0.25  

0.30  

0.35  

0.40  

1996   2008  

Theil  Ind

ex  

Within   Between  

0.34  

0.24  

But  within-­‐country  inequality  dominated  

•  Between-­‐country  inequality  grew  faster,  due  to  PRC’s  rela)vely  rapid  growth  

•  But  more  than  2/3  of  inequality  in  Asia  due  to  within-­‐country  inequality  

7  

22.6   29.6  

77.4   70.4  

0  10  20  30  40  50  60  70  80  90  

100  

1996   2008  

Within-­‐country  inequality  

Between-­‐country  inequality  

Asia’s  inequality  is  lower,  but  its  rise  over  )me  is  a  concern  

•  Average  Gini  in  developing  Asia  was  38  compared  with  52  for  LaAn  America  

•  Asia’s  recent  experience  contrasts  with  “growth  with  equity”  in  the  1960s  and  1970s  

•  Many  African  and  LaAn  American  countries  recorded  declines  in  Gini  coefficients  

8  

Inequality  of  opportunity  is  also  prevalent  

•  Children  from  poorest  households  3–5  Ames  more  likely  to  be  out  of  school,  and  10–20  Ames  less  likely  to  ahend  college  

•  Infant  mortality  rates  among  poorest  households  2–3  Ames  larger    

•  Gender  dispariAes  in  terAary  educaAon  persist  

9  

Inequality  maYers  in  Asia  

•  If  inequality  had  been  stable,  an  addiAonal  240  million  (6.5%  of  Asia’s  populaAon)  would  have  been  liied  from  poverty  

•  Inequality  can  weaken  the  basis  of  growth  itself  by:  – undermining  social  cohesion;  – worsening  the  quality  of  governance;  and  –  increasing  pressure  for  inefficient  populist  policies  

10  

Poverty  reduc)on  may  not  jus)fy  rising  inequality  

6.2%  

37.2%  

46.3%  

5.5%   4.8%  

Is  higher  income  inequality  acceptable  so  long  as  poverty  is  declining?  

Strongly  agree   Agree   Disagree   Strongly  disagree   Don't  know  

11  

Why  has  inequality  risen?  

•  Technological  progress,  globalizaAon,  and  market-­‐oriented  reform  drove  high  growth  in  Asia,  but  they  favored:  

– capital  over  labor  

– skilled  over  unskilled  workers  

– ciAes  over  inland  areas  

12  

Labor  share  is  declining  

13  

48.4  

30.5  36.5  

42.2  

28.8  21.8  

0  

10  

20  

30  

40  

50  

60  

People's  Rep.  of  China   Indonesia   India  

%  

Share  of  labor  income  (manufacturing  sector),    selected  Asian  countries  

Mid-­‐1990s   Mid-­‐2000s  

Educa)on  inequality  accounts  for    25–35%  of  total  inequality  

14  

8.1  

26.5  20.3  

29.9   29.8  25.0   23.2   24.7  

30.8  35.7  

44.2   46.2  

0  

10  

20  

30  

40  

50  

1995  

2007  

1993  

2009-­‐10  

1990  

2010  

2002  

2008  

1994  

2009  

1995  

2005  

PRC   India   Indonesia   Pakistan   Philippines   Thailand  

Share  of  between-­‐grou

p  ineq

uality,  %  

Income  inequality  decomposi)on  by  educa)onal  aYainment  of  household  head  

Spa)al  differences  contribute  to  widening  inequality    

15  

13  

21   22  26  

32  35  

38  

54  

0  

10  

20  

30  

40  

50  

60  

Sri  Lanka    (2009)  

Philippines    (2009)  

Pakistan    (2008)  

Indonesia    (2009)  

India    (2008)  

Viet  Nam    (2008)  

Bhutan    (2007)  

PRC    (2007)  

Share  of  spa)al  inequality  to  total  inequality  (%)  

Proposed  interven)ons  

•  Implement  targeted  fiscal  policies  to  reduce  inequality  in  human  capital  (educaAon  and  health)  

•  Help  lagging  areas  by  improving  connecAvity,  more  fiscal  transfers  and  promoAng  internal  migraAon  

•  AcAvely  promote  urbanizaAon  

•  Make  growth  more  employment  friendly  to  increase  the  labor  income  share  

16  

Proposed  interven)ons  

•  Support  development  of  SMEs  

•  Removing  factor  price  distorAons  that  discourage  the  use  of  labor  

•  Broaden  tax  base  and  improve  tax  administraAon  

17  

Thank  You  

18