Inclusive Development Index

Inclusive Development Index

Inclusive Development Index

In 2017, The World Economic Forum (WEF) introduced “a new economic policy framework and performance metric” which identifies 15 areas of “structural economic policy and institutional strength that have the potential to contribute simultaneously to higher growth and wider social participation in the process and benefits of such growth.” They are divided into 3 main areas:

NationaKPIs.png

 

How is Inclusion measured?

(a) Net Gini: measures how far the net distribution individuals' or households' income deviates from equal distribution.

(b) Poverty Rate:

  • for advanced economies, households are classified as poor when they earn less than half of the median national income;

  • in emerging countries, the percentage of households living on less than US$3.20 based on 2011 international prices.

(c) Wealth Gini: differences in the distribution of wealth

(d) Median Income: measures the highest income/ consumption expenditure of the first 50% of the population in 2011 purchasing power

 

Key-findings:

This post highlights some key-findings in their latest report published at the beginning of 2018. Data of 103 economies were analysed. Besides global rankings, the report also splits performance comparisons into emerging, advanced, BRICS and G7 countries. GDP is used to measure the “level” of economic activity. Through the introduction of additional indicators, it is hoped that the focus of governments “to the strength and equity of institutions “ through policy incentives will shift to such areas as skills development, labour markets, competition and rents, investor and corporate governance, social protection, infrastructure, and basic services. These play an important role in shaping the pattern of economic activity and particularly the breadth of social participation in the process and benefits of growth.” “Designed as an alternative to GDP, the Inclusive Development Index (IDI) reflects more closely the criteria by which people evaluate their countries’ economic progress” Detailed tables of the findings can be found here.

Among the most advanced economies, the three best performing, most inclusive economies are Norway, Iceland and Luxembourg. Among the emerging counties the three best performing, most inclusive economies are Lithuania, Hungary and Azerbaijan. Of the G7 countries, Germany (12th), Canada (17) and France (18) are highest ranked (rank in advanced countries in brackets). In the BRICS economies scale, Russia (19) is ahead of China (26) and Brazil (37). For a quick overview, click here.

 

Long-term trends

Has progress been made? Over the last five years, 64% of the 103 countries have seen improvement. Interestingly, this was mostly driven by higher-income countries, while according to WEF findings, lower-income countries have fallen behind. In the remaining countries, the IDI performance has decreased even when in some cases GDP increases occurred.

 

GDP and inclusive development

Another chart compares IDI and GDP per capita ranking. Despite higher GDP growth ranks, Brazil, Japan, Nigeria, South Africa and the US have lower IDI rankings. So, one of the key findings in this report suggests that GDP growth in itself does not generate higher inclusion. However, GDP growth may not be a sufficient but necessary condition for achieving a more inclusive economy.

 

Trust

A really surprising finding has been made in the area of trust:

...”economies where survey respondents agree that “most people can be trusted tend also to perform well on the IDI.”

Some Asian countries were the exception to this rule though. This finding points to the importance of fostering “a human-centric approach” to improve social cohesion.

 

Key Recommendations

The WEF concludes from the data analysis that many countries have significant potential to use their GDP growth for the introduction of wider structural reforms to improve living standards for all. By accepting the new and broader way of measuring performance of the structural reforms aimed at broad-based living-standards, the government will be more in line with how their citizens rate their economic policy.

 

References:

World Economic Forum: The Inclusive Development Index, Summary and Highlights

http://reports.weforum.org/the-inclusive-development-index-2018/tables/

 

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