Asia’s Growth Fuels Inequality, Threatens Stability
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Asia may be home to a number of emerging and developing markets, but it is also home to one of the poorest slums and regions in the world. In a regional report released today, the Asian Development Bank warns that Asia’s rising incomes could worsen the inequality gap, a situation that could undermine political stability and the region’s long-run growth prospects.
Asia may be home to a number of emerging and developing markets, but it is also home to one of the poorest slums and regions in the world. In a regional report released today, the Asian Development Bank warns that Asia’s rising incomes could worsen the inequality gap, a situation that could undermine political stability and the region’s long-run growth prospects.
Using the Gini coefficient to quantify the inequality gap, ADB warns that inequality widened over the past two decades in the three most populous countries – China, India, and Indonesia – which have been the key drivers of the region’s rapid growth. Taken as a whole, developing Asia’s Gini coefficient rose from 39 to 45 from the early 1990s to 2010.
The higher the Gini coefficient, the bigger and wider the inequality problem is.
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Noting that developing Asia is no longer a region of growth with low inequality, the bank said expanding income disparities in the economies account for more than 80 percent of the region’s populations, despite their relative success in raising average incomes and lifting people ‘out of poverty at an unprecedented rate’
The ADB estimates that in most Asian countries, the wealthiest 5 percent of the population account for nearly 20 percent of total income.
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ADB chief economist Rhee Changyong urged policymakers to be more responsive to the growing divide and to rethink existing distribution models:
[quote] With technology and communications, people can see how others are living all over the world, and their desire to live more equally is increasing. People are asking for more. Not only are they asking for bread, but they are asking for a more even distribution of bread. [/quote]
Calling inequality a vicious cycle with unequal opportunities, Rhee warned that inequality could lead to social tensions that can undermine the quality of governance and increase pressure for inefficient populist policies, weakening the basis for growth itself.
To address inequality, policymakers in developing Asia need to spend more on education and health, introduce better targeted social protection schemes and reduce or eliminate general price subsidies.
Furthermore, as a generation of educated Asians enter the workforce, the ADB says it would be beneficial for economies to create more productive jobs and assist lagging regions.
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