10 - The Role of Trade in Fostering Inclusive Growth in the Asia-Pacific

Summary

Rising inequalities in wealth and income, alongside other measures of exclusion, have been observed in both advanced and developing economies in recent decades. These growing disparities are often interpreted as a threat to not only social stability but also future economic prosperity. Changing the dynamics of growth to make it more “inclusive” has therefore become a priority at both the national and international levels. Inclusive growth can be broadly understood as growth that is accessed and shared equitably by all segments of society. In this context, trade and investment are recognized as being intimately linked with issues of employment, income distribution, and equality. However, the role that trade and international economic openness plays in generating inclusive growth, and the evidence from the Asia-Pacific region, is not empirically analysed. This chapter reviews the trends in growth, and inequality in the Asia-Pacific region before setting out a framework for linking changes in trade with inclusiveness. Next, the chapter presents cross-country analysis linking inclusivity across four dimensions — aggregate employment, productivity, poverty and income equality, and gender equality — to international openness through trade and investment. The results show that an expansion of trade and investment does not necessarily produce more inclusive development. Rather, a range of complementary policies need to be deployed alongside managed opening of national economies. Effective complementary policies likely to raise the inclusivity of growth include: increasing labour market flexibility; raising aggregate investment; lifting expenditures on information and communications technologies; and improving equal access to education.

INTRODUCTION

The Asia-Pacific region has achieved dynamic economic growth matched with significant reductions in absolute poverty over the last four decades. However, there has not been similar success on other aspects of inclusiveness. In particular, inequality within many countries has worsened. Moreover, marginalized and vulnerable countries did not succeed in capturing a proportionate share of the benefits created by the region's growth. Put simply, the orthodox approach which emphasized using trade and investment to increase overall growth, and considered distributional issues as secondary, has not produced fully inclusive societies. If the tradeand investment-led growth pursued to date had been more geared towards inclusiveness, the number of poor would today be even lower. In this context, the chapter reviews whether international trade and investment policies have supported inclusive growth in the Asia-Pacific region and considers how more inclusive growth can be fostered in future.