Breaking the Poverty TrapRonald U. Mendoza, Ph.D.Associate Professor of Economics

Social Protection

•An investment rather than mere redistribution…

•Strengthens citizenship and social cohesion…

•Only temporary: the issue of “graduation”…

•Fiscal sustainability…

•Mainly addresses the human capital investments for the next generation; but what about the present generation?•Risk of elite capture…

Source: Figure adapted from Balisacan (2011). Scenarios based on author’s calculations.

How growth trickles down?Ra

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Percent change in poverty incidence arising from 1% change in mean income

At 3% growth, and at 1.5% poverty elasticity of growth, it will take the Philippines 360 years to eliminate poverty.

At 8% growth, and at 1.5% poverty elasticity of growth, it will still take the Philippines 130 years to eliminate poverty.

At 10% growth (approximating China’s) and 5% poverty elasticity of growth (approximating Thailand’s), it will take 24 years to eliminate poverty in the Philippines.

Source: The Economist (2013).

Can we eradicate extreme poverty worldwide?

Inequality matters…

World Bank: a 1% increase in incomes cut poverty by 0.6% in the most unequal countries but by 4.3% in the most equal ones.

5

Schizoprenic economy?

Some elements of inclusiveness?

•Inclusive human capital investments (the starting point)…

•Building resilience in a crisis-prone world…

•Sustainable growth: shifting from (primarily) extractive and rent-based growth to innovation and productivity based growth…

•Competition and industrial policies: striking the balance (over time) between state and market; and between large and small enterprises – while preserving equity, efficiency and stability aspirations of society