Exclusion, growth and poverty

There is some evidence that economic growth is positively related to equality. One explanation for this is that with more equality there is more investment in education, health and nutrition. There is also some evidence to show that policies designed to tackle social exclusion can lead to more equitable forms of

growth as excluded groups gradually gain greater access to education, employment and business opportunities.  Excluded sections of the population can often be quite large (for example, racial groups in Latin America), so targeted policies can have an impact on increasing human capital and widening economic markets, whilst reducing the risk of political instability and its overall impact on economic growth.

The poverty-reducing effects of economic growth fall as inequality rises. In addition, the interaction of economic inequalities with other inequalities may result in negative consequences for growth. For example, economic dynamics and innovation depend on competitive processes of entry that are stifled by unequal economic institutions. Greater equity in political institutions is also considered good for growth because it is associated with broader and better-quality provision of public education, which, in turn, translates into a better-performing workforce.

Zoninsein, J, (2001). The Economic Case for Combating Racial and Ethnic Exclusion in Latin American and Caribbean Countries (Research Report). New York: Inter-American Development Bank.
What economic gains would come from ending racial and ethnic exclusion in Latin America and Caribbean countries (LAC)? This working paper employs Brimmer’s methodology to analyse household survey data from Bolivia, Brazil, Guatemala and Peru. It presents some potential gains in terms of aggregate production and income. Ending long-term social exclusion could expand the economies of LACs by up to 36 percent. This would bring gains to society as a whole, not just to the excluded groups.
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Gradstein, M. (2003). The Political Economy of Public Spending on Education, Inequality and Growth. Washington DC: World Bank.
This paper examines data on public spending on education in developing countries, revealing significant inequality in the distribution of resources between rich and poor groups. While current donor policy is to alleviate poverty through the universal provision of public services in developing countries, the evidence suggests that political dynamics within these countries often distort these goals to the disadvantage of the poor. Personal rent-seeking, in the form of political pressure from richer households, skews resource allocation, often resulting in both increased inequality and social exclusion.
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