11 Growth policy/strategy and
inequality in developing Asia
Hyun-Hoon Lee, Minsoo Lee, and
Donghyun Park
Introduction
Growth policy refers to the various government policies that influence the
economic growth of a country. Some of those policies are explicitly geared toward
promoting growth while others impinge upon growth even though they serve other
objectives. For example, many governments in developing countries try to foster
domestic savings and thus promote investment and the accumulation of physical
capital as an explicit means of stimulating growth. Indeed, high savings and
investment rates induced by supportive government policies were one of the key
ingredients of the East Asian Miracle. On the other hand, heavy investment in
public education aims to impart literacy, numeracy, and other basic knowledge to
as much of the population as possible. Educating the youth is in and of itself a key
policy objective in all countries. At the same time, a better educated population
and hence labor force contributes to a higher stock of human capital and hence
higher growth. Growth strategy refers to a country’s constellation of policies that
directly and indirectly affect economic growth. In fact, many developing countries
have 5- or 10-year national economic plans that specify a target growth rate and a
collection of policies – i.e., growth strategy – to achieve the target.
While the central objective of a growth strategy is to foster economic growth, a
growth strategy inevitably has significant ramifications for inequality. Virtually
all growth policies have an impact on inequality, but some specific examples
include promotion of export-oriented manufacturing, promotion of manufacturing
over services, adoption of labor-intensive versus capital-intensive production
technologies, the relative role of small and medium-sized enterprises versus big
companies, the relative role of skilled versus unskilled workers, and regional
development priorities. For example, in many developing countries, the government
pursued policies that favored the urban sector at the expense of the rural
sector, by artificially keeping down the prices of staple foods. Such policies exacerbated
inequality between urban and rural areas. In the case of developing Asia,
the top priority of policy makers up to now has been to maximize economic
growth. Growth strategy has focused almost entirely on its central objective – i.e.,
growth – with limited consideration for inequality.
More recently, however, there is a growing recognition among developing
Asia’s policy makers that sustainable growth requires including the largest