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
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