With this longer term perspective, it is important to recognize the time lag between
reforms and outcomes. A good example is the lag between the time when investments
in education are made and the time when returns from improved labor skills are collected.
This implies that the analysis must identify future constraints to growth that may not be
binding today, but that may need to be addressed today in order to ensure sustainable and
inclusive growth. Inclusive growth analytics is about policies that should be implemented
in the short run, but for sustainable inclusive growth in the future.
Concluding remarks
This note defines the meaning of the term ‘inclusive’ growth, and argues that a
program on inclusive growth has a distinct character focusing on both the pace and
pattern of growth. Rapid pace of growth is unquestionably necessary for substantial
poverty reduction, but for this growth to be sustainable in the long run, it should be
increasingly broad-based across sectors, and inclusive of the large part of the country’s
labor force. This definition of inclusive growth implies a direct link between the macro
and micro determinants of growth and captures the importance of structural
transformation for economic diversification and competition.
Inclusive growth is about raising the pace of growth and enlarging the size of the
economy, while leveling the playing field for investment and increasing productive
employment opportunities. It focuses on ex-ante analysis of sources, and constraints to
sustained, high growth, and not only on one group – the poor. The analysis looks for
ways to raise the pace of growth by utilizing more fully parts of the labor force trapped in
low-productivity activities or completely excluded from the growth process.
Policies for inclusive growth are an important component of any government
strategy for sustainable growth and the frameworks for inclusive growth analytics
are eclectic in spirit. The main instrument for a sustainable and inclusive growth is
assumed to be productive employment. Employment growth generates new jobs and
income for the individual - from wages in all types of firms, or from self employment,
usually in micro firms - while productivity growth has the potential to lift the wages of
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those employed and the returns to the self-employed. The ability of individuals to be
productively employed depends on the opportunities to make full use of available
resources as the economy evolves over time. The analysis therefore looks at ways to
strengthen the productive resources and capacity of the individual on the labor supply
side as well as ways to open up new opportunities for productive employment on the
labor demand side.
The inclusive growth approach takes a longer term perspective. With this longer term
perspective, it is important to recognize the time lag between reforms and outcomes.
Inclusive growth analytics is about policies that should be implemented in the short run,
but for sustainable inclusive growth in the future.