Inclusive Growth as a New Development Model

Area of Scanning: Economic System

Author: Imran Arshad and Jean Kunz

What is Changing?

The concept of “inclusive growth” (*see definition below) as an economic development model has been a common theme among a range of Asian countries (i.e., China, India, Indonesia, Malaysia, etc.). Inclusive growth strategies can facilitate the growth of a more robust middle class, leading to a more consumption-led and/or service-oriented economy. They help address inequality issues, as well as promote the idea of the need for social protection by the state. If successful, they can legitimize the efforts of those in power. But the consequences of inclusive growth may not be what we might naturally assume. Efforts to reduce waste and extravagance, both through individual efforts such as social capitalism, and state intervention such as constrained capitalism, may lead to lower levels of consumption on the one hand, and higher demand for services on the other.  

Implications

Better environmental and labour regulations, as well as improved governance may make Asia less attractive for companies to do business there. Instead of conspicuous consumption, the Asian middle class may adopt frugal (or smart) consumption, opting for products that are environmentally friendly and durable. Luxury goods manufacturers can no longer rely on their Asian consumers for sales growth as they currently do. Instead of makers of cheap goods, Asia will become the exporters of frugal innovation both in terms of goods and services. As the services industry grows in both China and India, smaller export-oriented economies in Asia and around the world will be impacted.

Inclusive growth involves implementing broad-based strategies that increase the pace and distribution of growth across sectors and provide productive employment opportunities to close the inequality gap. It is measured using the following metrics (ADB report): GDP/capita, share of employed in various sectors, access to economic infrastructure, poverty and inequality indicators, human capability dimensions (i.e., educational enrollment, access to water and sanitation, health indicators), and social protection initiatives. 

 

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