Industrialisation, Trade Policy and Poverty Reduction: Evidence from Asia

Over recent decades, most of the developing economies of Asia achieved reductions in absolute poverty incidence, but these reductions varied greatly in size. Differences in the rate of aggregate economic growth explain part, but not all of these differences. One factor that would be important is the sectoral composition of the growth. This paper examines the relationship between poverty reduction outcomes and the rate of growth in the agricultural, industrial and services sectors. It assembles available data on the headcount measure of poverty incidence in East Asia (Taiwan), Southeast Asia (Thailand, Indonesia, Malaysia and the Philippines) and South Asia (India), from the 1960s to the 1990s. It then uses these data to analyze the economic determinants of changes in poverty incidence. It is concluded that growth of agriculture and services consistently contribute to poverty reduction but that the contribution of industrial growth crucially depends on the trade policy environment in which the growth occurs.