Wednesday, April 16, 2014
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The Other Asia

WASHINGTON, DC – South Asia presents a depressing paradox. It is among the fastest growing regions in the world, but it is also home to the largest concentration of people living in debilitating poverty, conflict, and human misery. While South Asia is far more developed than Sub-Saharan Africa, and India (the largest country in the region) has achieved lower middle-income status, South Asia has many more poor people than Sub-Saharan Africa.

This raises the big question of whether the best escape from poverty comes from general economic growth or from a direct attack on poverty. The answer depends on where one looks. Stupendous growth hides deep pockets of poverty. For the countries of South Asia, poverty has morphed from a national to a sub-national problem.

Although economic growth has reduced South Asia’s poverty rate, it has not fallen fast enough to reduce the total number of poor people. The number of people living on less than $1.25 a day increased from 549 million in 1981 to 595 million in 2005. In India, which accounts for almost three-quarters of this population, the numbers increased from 420 million to 455 million during this period. Besides the slow pace of poverty reduction, human development has not kept up with the pace of income growth, either.

There are more than 250 million children in South Asia who are undernourished, and more than 30 million children who do not go to school. Over one-third of adult women are anemic. The share of female employment in total employment is among the lowest in the world.

Indeed, South Asia, with deeper regional disparities than the rest of the world, is really two South Asia’s. A lot of attention has been given to the “Shining Asia,” while the “Suffering Asia” has been forgotten. The gap between them is so wide that they seem to be anchored in two different centuries. Worse still, it continues to increase.

The leading regions have experienced rapid growth. They have acted as gateways connecting South Asia to the developed world, and have benefited from globalization, education, capital accumulation, and technological advancement. This is sustainable as there is huge room for South Asia to catch up to rich countries’ productivity levels.

This transformation has become a virtuous circle where initial growth has spiraled into greater growth, leading to more growth. Some leading regions in India are now the envy of other middle income countries. Indeed growth can eliminate poverty in leading regions in a generation. But the lagging regions are doing no better than many Sub-Saharan African countries. Indeed, their social and human development indicators are worse than in Sub-Saharan Africa.

South Asia’s worst problems – poverty, conflict, hunger, and gender inequalities – are largely concentrated in its lagging regions, where there are limits to growth, because geography, institutions, and globalization will continue to favor the concentration of economic activity in the leading regions. With migration to leading regions low, poverty remains concentrated in the lagging regions.

What can be done? There is no universal “fix” in economic development, and pluralism of approaches has great value. The challenge is to find what works best inwhich setting.

While economic growth is critical for poverty reduction, reviving growth in lagging regions will take time. Rather than wait for a rising tide to lift all boats, policymakers should consider direct policy interventionsto reduce poverty. A direct attack on poverty can yield a double dividend: in reducing human misery, it could spark growth, thereby creating more political space for direct poverty reduction.

A high priority should be given to increasing pro-poor fiscal transfers. Lagging states spend considerably less than leading states on social services, including education and health care. Poor regions have a low base of economic activity to tax, which prevents them from investing in human and physical capital. Achieving equity through fiscal transfers can ensure a level playing field.

But simply directing financial resources to lagging regions will not be enough to solve their problems. For example, the gains from labor mobility have not been equally sharedbetween educated and uneducated migrants. The gains are much higher for skilled workers, so the mobility rate increases with education. The mobility of university graduates is much higher than the mobility of unskilled workers.

Removing barriers to human mobility – such as labor laws, state-specific social-welfare programs, and housing-market distortions – should be an integral part of development. Human mobility promotes growth and reduces poverty. It also empowers traditionally disadvantaged groups, particularly women.

Likewise, slow agricultural growth has constrained economic opportunities for the vast majority of poor people in lagging regions. Policymakers should recast agriculture in the new environment of globalization, supply chains, and growing domestic demand. The food-price crisis of two years ago served as a wake-up call, and has created an opportunity to revisit existing agricultural policies.

Regional development policies to promote so-called “equitable growth” are not a solution, for two reasons. First, empirical evidence shows that convergence of per capita income between lagging and leading regions is neither a necessary nor a sufficient condition for achieving poverty reduction and social convergence. Second, regional policies that promote “balanced” growth could lower overall growth, thereby impeding poverty reduction.

South Asia is at a critical stage in its historical transformation, when deepening economic disparities could stifle growth itself. If not addressed through direct measures, all of Asia will suffer.

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