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FEATURE STORY

Paving the Way to Shared Prosperity in Emerging Europe and Central Asia

April 9, 2014

STORY HIGHLIGHTS
  • The first decade of the new millennium saw sustained growth of the incomes of the bottom 40 percent in Emerging Europe and Central Asia, above average GDP growth.
  • In some countries, however, poorer people have experienced contraction in their incomes, while in others they enjoyed yearly rates above 7 percent.
  • Going forward, sustained growth of the bottom 40 percent will require structural policies that facilitate access to assets and reconcile equity and growth for all.

     

In low-income and middle-income countries the world over, the proportion of people living in extreme poverty has declined by more than half in two decades, from 43 percent in 1990 to 21 percent in 2010. At the same time, increased income levels have enabled millions of people to join the middle class.

Forty years ago, developing economies across the globe accounted for only one fifth of world gross domestic product (GDP), whereas today they account for almost one third. Economic prosperity has never been more evenly distributed across the regions of the world than it is today.

Yet economic prosperity has not been shared with everyone. In several countries, many people in the lower half of the income bracket – the bottom 40 percent – have watched their income growth slow, stagnate, and in some cases decline – while the prosperity gap between the wealthiest and the poorest continues to expand.

In Emerging Europe and Central Asia, most countries have done relatively well at increasing the incomes of the bottom 40 percent, which grew by an average of 3.8 percent from 2005 to 2010, faster than the income growth of the population overall. Even though these gains proved resilient to the 2008–09 global financial crisis, the region now stands at a crossroads.

The crisis that abruptly halted a prolonged period of strong economic growth in the first decade of the century has been followed by a tepid recovery, leaving many economies in Emerging Europe and Central Asia at risk of economic stagnation. Short- to medium-term growth forecasts remain grim, with fiscal austerity measures and stifled investment fueling growing frustration and social unrest – particularly among the young, unemployed, and socially excluded.

To prevent past economic gains from being reversed, a better understanding of the interplay between equity and growth is essential for development practitioners, policy makers, and governments.

The World Bank Group has recently renewed its overall strategy, establishing two overarching goals: eliminating extreme poverty and boosting shared prosperity. The latter objective, which is the focus of a new report, Shared Prosperity: Paving the Way in Europe and Central Asia, aims to increase the welfare of the bottom 40 percent of the income distribution in every country. Long-term sustainability of social progress is also an important consideration in pursuing both of these overarching goals.

A commitment to the advancement of the least well-off is not new for the World Bank, which has consistently worked to ensure that economic growth is shared widely, and that it benefits lower-income groups. In 1974, a group of World Bank economists first highlighted the need to view distributional objectives jointly with growth objectives, and to express these objectives dynamically in terms of desired rates of growth of income of different groups. Their quest reflected an early vision of what would eventually become an integral part of the World Bank Group’s strategy to foster income growth of the bottom 40 percent of the population in every country.

Four decades ago, the existing data was far less comprehensive and advanced than that which is available today. With more than 4,000 surveys of households and firms across 192 countries, a wealth of data now exists on a wide range of topics such as living standards, demographic characteristics and health conditions, financial situations, constraints to growth, and investment environments, which helps to advance economic theory and to better identify and evaluate the impact of economic shocks and policies.

New ways of thinking are required in the debate about shared prosperity in Emerging Europe and Central Asia – and beyond – if we are to better understand the conditions and policies that lead to more systematic income growth for the bottom 40 percent and identify policies and investments that can help countries accelerate income growth for this group of the population.

To this end, the report seeks to provide a view of shared prosperity that reconciles equity and growth, while building a bridge between macro-economic and micro-economic drivers of income growth among the bottom 40 percent in different parts of the region. Achieving shared prosperity may be an enormous challenge, but it is one that can be met with bold thinking and determined action.

Related Feature Story: Mariam and Emre - two stories of shared prosperity