The Role of Trade in Fostering Inclusive Growth in the Asia-Pacific

Abstract

Rising inequalities in wealth and income, alongside other measures of exclusion, have been observed in both advanced and developing economies in recent decades. These growing disparities are often interpreted as a threat to not only social stability but also future economic prosperity. Changing the dynamics of growth to make it more ‘inclusive’ has therefore become a priority at both the national and international levels. Inclusive growth can be broadly understood as growth that is accessed and shared equitably by all segments of society. In this context, trade and investment are recognised as being intimately linked with issues of employment, income distribution and equality. However, the role that trade and international economic openness plays in generating inclusive growth, and the evidence from the Asia-Pacific region, is not empirically analysed. This paper reviews the trends in growth, and inequality in the Asia-Pacific region before setting out a framework for linking changes in trade with inclusiveness. Next the paper presents cross-country analysis linking inclusivity across four dimensions—aggregate employment, productivity, poverty and income equality, and gender equality—to international openness through trade and investment. The results show that an expansion of trade and investment does not necessarily produce more inclusive development. Rather, a range of complementary policies need to be deployed alongside managed opening of national economies.