The Influence of Technology on Inclusive Growth through Poverty Reduction

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Indicators and determinants of inclusive growth

Measuring the inclusiveness has imposed a challenge in the literature, since the concept started to be minced. The number of studies measuring this type of growth is still limited and while the concepts they propose are far away from consensual, everyone of them contributes to exploring this term and providing new possibilities of measurement to be taken into account. Similarly to the definition process, the process of measurement has been quite complex as to the indicators used as well as to the results obtained. In the limited number or emprical studies, the orientation of the debate towards a more comprehensive definition/measure is notable, replicating that the center of the concept is decreasing poverty. The employment of different definitions of the concept in the empirical literature, contribute to different outcomes which should not be surprising. Table 1 sums the different indicators and findings in the recent empirical literature.

The link between access to technology and inclusive growth

The more recent type of economic models of the endogenous growth literature by Romer (1990), Grossman and Helpman (1991) and Aghion and Howitt (1992), all share the characteristic that a technology is crucial for economic growth and that continued increase in the level of resources spent on the creation of new technologies leads to a continued increase in economic growth. The development practitioners today, tend to emphasize the importance of reliable and affordable technology and infrastructure for reducing poverty and its contribution in the achievement of Millenium Development Goals. However, it should be stressed that access to technology is not a goal in itself, since technology is a mean for achieving development goals decreasing poverty and increasing opportunities (Pigato, 2001). Both, economic and social infrastructure, are crucial ingredients for the concept of inclusive growth. Economic or “hard” infrastructure refers to the large physical networks necessary for functioning of a modern industrial nation: transporting and water infrastructure, electricity and communication infrastructure and facilities. It brings about economic development. Social or “soft” infrastructure refers to institutions required to maintain health, cultural and social standards of a country, financial system, education system, health care system, government, law enforcement. Social infrastructure brings about human development.

Economic infrastructure – theoretical implications from inclusive growth perspective

There are many macroeconomic studies that have tried to empirically link public infrastructure investments to economic growth (Aschauer, 1989; Canning & Bennathan, 2000; Straub & Terada-Hagiwara, 2011). For the case of economic infrastructure, studies show that investment in their quantity, as well as quality, contributes positively to economic growth (Calderón, 2009; Xueliang, 2013). In addition, studies show that infrastructure investment reduces inequality (Calderón & Servén, 2004a). In fact, good transport network reduces transport costs, road congestion and promotes industrial development throughout the country. The supply of electricity, on the other hand, is believed to be a fundamental requirement for economic and social development (Kanagawa & Nakata, 2008). Communication technologies through the supply of information enable the society to accommodate and appropriately manage economic information in order to increase overall welfare (Suregeni, 2008).

Description of variables

The dependent variables used in this model are two different poverty measures, that are poverty headcount ratio and poverty gap. Headcount ratio is the relation between number of people living bellow certain level of income, referred as poverty line, and the total population in the country. This level of income is estimated after the main expenses for food and shelter as well as non-food consumption is extracted from the total income. International poverty lines are also adjusted for inflation over years, in order to remain constant in real terms and to enable meaningful comparison of poverty over time. The study from Ravalion and Chen (2008) used improved price data from the 2005 International Comparison Program to adjust for change of prices in cost of living, and suggested a new poverty threshold at $1,25 dollars a day, according to 2005 Purchasing Power Parity. From 2008 this poverty line is internationally accepted and used until today (previous poverty line was $1 and $1.08 dollars a day). This line is also representing the mean of the national poverty lines for the poorest 15 countries in the world15 . Poverty gap is a measure for depth of poverty that is the amount of income by which the average income of the poor falls short of the poverty line. It is estimated with reference to a certain poverty line used, so in this model the poverty gap is estimated at $1.25 a day poverty line.

READ Venn diagram of sustainable development

From pro-poor to inclusive growth

The term inclusive wаs first used in the beginning of the century when Kakwani and Pernia (2000) employed it to highlight the nature of what they considered to be an upgrade of the concept of pro-poor growth. The reference to it as “inclusive economic growth” intended to stress the particular attributes that make pro-poor growth distinct. These two terms should not be misused. Inclusive growth is at the same time a pro-poor growth whereas the opposite relation is not necessarily true (Ianchovichna & Lundstrom, 2009). Speaking of the attributes that make growth inclusive, it should be noted that they differ according to the different concepts of the pro-poor growth that they are in line with. Namely, the growth can be pro-poor in absolute terms if this growth raises the incomes of poor people (regardless what happens with inequality). On the other hand, growth can be pro-poor in relative terms if the incomes of the poor people rise more than proportionally of the rise of total incomes, meaning inequality decreases (Zependa, 2004). While, some inclusive growth definitions are interchangeable with the absolute pro-poor growth definition (Ravallion, 2004; Ianchoivicna & Lundstrom, 2009; Habito, 2009; Klasen 2010), most studies acknowledge that reducing both, poverty and inequality is at the heart of the meaning of inclusive growth. (Ali & Son, 2007; Rauniyar & Kanbur, 2010; UNDP, 2013). However, these are not the only attributes that constitute the concept of inclusiveness.

Table of Contents :

1 Introduction
2 Inclusive Growth – Theoretical Framework
- 2.1 From pro-poor to inclusive growth
- 2.2 Different approaches in defining inclusive growth
- 2.3 Indicators and determinants of inclusive growth
3 Technology and Inclusive Growth
- 3.1 The link between access to technology and inclusive growth
- 3.1.1 Economic infrastructure – ttheoretical implications from inclusive growth perspective
4 Empirical Model
- 4.1 Methodology
- 4.2 Description of variables
5 Results and Analysis
6 Conclusion
7 References
8 Appendix