Inclusive Growth Can Help Unleash South Asia’s Untapped Potential

South Asia has suffered an unprecedented combination of shocks over the past three years, and moving from recovery to growth requires ensuring economic development is inclusive, says the World Bank in its latest regional economic update. Expanding Opportunities: Toward Inclusive Growth is the subject of a two-day conference that opens, organized by BRAC Institute of Governance and Development (BIGD) and the World Bank. The conference provides academics and researchers a platform to discuss South Asia’s economic outlook, and how socio-economic disparities prevent the region from achieving its development goals.

Over the past two decades, sustained economic growth in South Asia has lifted some 250 million people out of extreme poverty and improved living standards. However, economic growth has not benefited all groups equally, and social progress remains elusive. South Asia has among the world’s highest inequality of opportunity. Between 40 and 60 percent of total inequality in the region is driven by circumstances out of an individual’s control such as place of birth, family background, caste, ethnicity, and gender. Intergenerational mobility is also among the world’s lowest – less than 9 percent of individuals whose parents have low levels of education reach education levels of the upper 25 percent.

Inequality of opportunity is not only unfair, but it is also inefficient. It prevents an optimal allocation of talent and reduces incentives to accumulate human capital, and derails long-term economic growth.

“Bangladesh has made significant progress in bridging gaps between low and high opportunity groups, particularly in the education sector. However, much remains to be done,” said Abdoulaye Seck, World Bank Country Director for Bangladesh and Bhutan. “South Asian countries must continue to reduce socio-economic disparities as they lead to differences in access to jobs, earnings, consumption, and welfare, and impact overall growth.” 

While the region as a whole experiences inequality, there is considerable variation between countries. Bangladesh, Sri Lanka, and Bhutan have somewhat better mobility and equality of opportunity than their regional neighbors. Within countries, there is an urban premium. This means that being born in a city translates into higher chances to move further ahead than one’s own parents (in terms of education) and, more generally, other circumstances do not constrain achievement as tightly as in rural areas. Remarkably, given the high gender gaps in South Asia, girls benefit more than boys from being in a city.

“Reducing inequality of opportunity and increasing economic mobility in South Asia is important because it is an essential part of broadening the tax base,” said Hans Timmer, World Bank Chief Economist for South Asia. “Therefore, eliminating obstacles to mobility is not merely a long-term agenda, but should be a central part of current reform programs that aim to make the fiscal outlook more sustainable, and help South Asia achieve its full potential.”

To this end, the report recommends continuing to improve the quality of primary education and expanding access to secondary and higher education, evaluate and strengthen affirmative action policies targeted to “low opportunity” groups, and policies to improve the business climate for small and medium enterprises, who account for the bulk of job opportunities for the less well-off. In addition, reducing barriers to labor mobility can have a powerful equalizing impact as urban areas tend to offer more opportunities for social mobility.

“The high levels of inequality of opportunity and low intergenerational mobility in South Asia are not only unjust but also impede long-term economic growth,” said Imran Matin, BIGD Executive Director. “Policies to address it will create a more equitable society and help unlock the region’s full potential. We should remember that lack of social progress means lack of social justice.”