Toward Inclusive Growth

• Author: Tao Zhang

Toward Inclusive Growth Finance & Development, March 2017, Vol. 54, No. 1

Tao Zhang

Emerging markets should share the fruits of their growth more equitably

Growth rates in emerging market countries have significantly outpaced those of more developed economies in recent years. Poverty has fallen; standards of living have improved. But with this rapid expansion comes the danger that the gap between the rich and the poor in those countries will widen. Pew Research polls show that most people are optimistic about the future in emerging markets such as India, Nigeria, and other countries that are progressing toward advanced economy status. But we must ensure that growth remains inclusive in these economies so that this optimism is justified.

By inclusive growth, I mean a more equitable sharing of the benefits of increased prosperity, decent-paying jobs, equal employment and education opportunities, and improved access to and provision of health care and financial services. In comparison to advanced economies, emerging markets experience greater income disparity and higher poverty, and lag behind in access to key social services like health care and finance.

We need to make growth inclusive not only because it is the morally right thing to do, but also because it is critical for achieving sustainable strong growth. Research inside and outside the IMF has shown that high levels of inequality tend to reduce the pace and durability of growth and that policymakers should not be afraid to adopt measures that ensure shared prosperity, including ones that redistribute wealth.

So it will be important for policymakers to ensure that growth’s benefits are shared equitably. Failure to do so risks increasing political and social instability, stifling investment in human and physical capital, and eroding support for structural reforms—which would impede the sustained growth that emerging markets need to achieve high-income status. Addressing these issues today is all the more important in light of the prospect of less favorable global economic conditions.

More progress neededOver the past few years, emerging markets have made progress in fostering inclusive growth—thanks, in part, to favorable global conditions, such as low interest rates and rebounding international trade. Growth in these countries has averaged about 4 percent a year since the early 2000s, accounting for over half of global growth. And income inequality has declined, with the Gini...