## The Economics of Promoting Inclusive Growth ## Source details **Canonical URL:** [The Economics of Promoting Inclusive Growth](https://www.imf.org/en/publications/fandd/issues/2018/06/economics-of-promoting-inclusive-growth-ostry) ## Other formats - [Markdown version](/en/publications/fandd/issues/2018/06/economics-of-promoting-inclusive-growth-ostry/index.md) - [Structured JSON version](/en/publications/fandd/issues/2018/06/economics-of-promoting-inclusive-growth-ostry/index.json) - [Bundle manifest](/en/publications/fandd/issues/2018/06/economics-of-promoting-inclusive-growth-ostry/bundle-manifest.json) ## Bibliographic details - Authors: JONATHAN D OSTRY - Published: June 1, 2018 - Volume: 55 --- ### Thesis and overview - New IMF research argues policymakers should pursue both economic growth and tackling widening inequalities together. - To ensure sustainable growth, policymakers must promote inclusive policies rather than rely solely on supply-side reforms. ### Context and motivation - The global economy was experiencing its broadest synchronized expansion since 2010 at the time of writing. - Economists historically emphasized supply-side measures (reducing barriers to entry, more flexible labor markets, liberalization, deregulation) as key to sustaining growth. - Structural reforms were found to confer sizable benefits for economic growth through: increased overseas capital investment, easier access to credit for local firms, reallocation of capital to more productive uses, improved credit ratings, and longer growth spells. ### Costs of inequality - Since the global financial crisis of 2008, evidence suggests growth is more fragile and less resilient when gains accrue mainly to the wealthiest. - Mechanisms by which inequality undermines resilience: - Less social support for corrective policies after adverse shocks if short-term pain is not widely shared. - Unequal access to education, health care, nutritious food, credit markets, and the political process reduces overall resilience. - Empirical findings cited: - Work by Berg and Ostry (2017) found greater likelihood of severe downturns in countries with high or rising inequality in the years and decades before the crisis. - Concept introduced: macro-distributional view — policymakers should focus simultaneously on the size of the pie and its distribution. ### Macro-distributional linkages and economic risks - Economists previously focused insufficiently on linkages between distribution and macroeconomic outcomes (macro-distributional linkages), analogous to earlier neglect of macro-financial linkages. - Risks include: - Secular stagnation (prolonged deficiency in aggregate demand) interacting with secular exclusion (growth accruing only to the top), creating a vicious cycle if median incomes stagnate and polarization intensifies. ### Implications for policy design - Distributional effects are driven in part by policies that are core tools of economists, including macroeconomic policy settings, supply-enhancing reforms, and financial liberalization. - Policy design should assess impacts on both aggregate growth and distributional consequences. - Distributional consequences should inform reform design to: - Better balance winners and losers. - Increase political durability and legitimacy of reforms. - Reduce the risk that backlash will lead to protectionism or nationalist responses that undermine growth. ### Winners, losers, and political economy - Reforms create winners and losers; opposition from losers can block reforms and reduce the political viability of reformers (political economy constraint noted by Jean-Claude Juncker). - Globalization similarly increases aggregate pie but can produce prolonged dislocation for some groups, fueling nativist or protectionist politics. - Remedies after the fact (redistribution via taxation and transfers) are possible but historically difficult to implement at the scale needed; therefore, preemptive design to mitigate distributional harms is preferable. ### Research on trade-offs and policy channels - Recent work finds some structural reforms entail growth-equity trade-offs; for example, opening to cross-border capital flows tends to increase both growth and inequality. - Policy implication: do not abandon reforms because of distributional effects; instead, redesign reforms and complementary policies to better share gains. - One policy approach: ensure the domestic financial sector is inclusive and well regulated so benefits of external financial liberalization are broadly shared. ### Urgent policy priorities recommended - Provide income support for workers displaced by technological change or trade, and offer incentives and opportunities to learn new skills. - Fiscal policy measures to safeguard political legitimacy of the growth model: - Ensure regulations are not skewed in favor of the wealthy. - Increase taxation of rents and estates. - Cooperate across jurisdictions to stem corporate tax avoidance, tax inversions, and use of tax shelters. - Strengthen financial market regulation to: - Prevent insider trading and money laundering. - Prevent unfair competition and crony capitalism across industry, services, and media. - Emphasize preemptive action in designing reforms and globalization to account for distributional effects rather than relying primarily on ameliorative measures afterward. - Principle articulated: Inclusive globalization need not be the same as unbridled globalization. ### Key references cited in the piece - Berg, Andrew, and Jonathan D. Ostry. 2017. “Inequality and Unsustainable Growth: Two Sides of the Same Coin?” IMF Economic Review 65 (4): 792–815. - Ostry, Jonathan D., Andrew Berg, and Siddharth Kotharti. 2018. “Growth-Equity Tradeoffs in Structural Reforms.” IMF Working Paper 18/5. - Ostry, Jonathan D., Andrew Berg, and Charalambos G. Tsangarides. 2014. “Redistribution, Inequality and Growth.” IMF Staff Discussion Note 14/02. - Ostry, Jonathan D., Prakash Loungani, and Andrew Berg. 2018. Confronting Inequality: How Societies Are Free to Choose Inclusive Growth. - Ostry, Jonathan D., Prakash Loungani, and Davide Furceri. 2018. “Are New Economic Policy Rules Needed to Mitigate Rising National Inequalities?” *Source: F&D Magazine article "Growth or Inclusion?" by Jonathan D. Ostry, June 2018.* --- ## Content in this bundle - **النمو أم الشمول** - [النمو أم الشمول (Markdown version)](/-/media/files/publications/fandd/article/2018/june/ar/ostry.pdf.md){rel="alternate" type="text/markdown"} - [النمو أم الشمول (PDF)](/-/media/files/publications/fandd/article/2018/june/ar/ostry.pdf){rel="external" type="application/pdf"} - **¿Crecimiento o inclusión? ● El dinero se transforma ● Finanzas y Desarrollo ● Junio de 2018** - [¿Crecimiento o inclusión? ● El dinero se transforma ● Finanzas y Desarrollo ● Junio de 2018 (Markdown version)](/-/media/files/publications/fandd/article/2018/june/es/ostry.pdf.md){rel="alternate" type="text/markdown"} - [¿Crecimiento o inclusión? ● El dinero se transforma ● Finanzas y Desarrollo ● Junio de 2018 (PDF)](/-/media/files/publications/fandd/article/2018/june/es/ostry.pdf){rel="external" type="application/pdf"} - **Croissance ou inclusion ?** - [Croissance ou inclusion ? (Markdown version)](/-/media/files/publications/fandd/article/2018/june/fr/ostry.pdf.md){rel="alternate" type="text/markdown"} - [Croissance ou inclusion ? (PDF)](/-/media/files/publications/fandd/article/2018/june/fr/ostry.pdf){rel="external" type="application/pdf"} - **The Economics of Promoting Inclusive Growth - IMF F&D Magazine** - [The Economics of Promoting Inclusive Growth - IMF F&D Magazine (Markdown version)](/-/media/files/publications/fandd/article/2018/june/ostry.pdf.md){rel="alternate" type="text/markdown"} - [The Economics of Promoting Inclusive Growth - IMF F&D Magazine (PDF)](/-/media/files/publications/fandd/article/2018/june/ostry.pdf){rel="external" type="application/pdf"} - **Рост или инклюзивность? – Финансы и развитие – июнь 2018 года** - [Рост или инклюзивность? – Финансы и развитие – июнь 2018 года (Markdown version)](/-/media/files/publications/fandd/article/2018/june/ru/ostry.pdf.md){rel="alternate" type="text/markdown"} - [Рост или инклюзивность? – Финансы и развитие – июнь 2018 года (PDF)](/-/media/files/publications/fandd/article/2018/june/ru/ostry.pdf){rel="external" type="application/pdf"} - **增长还是普惠? - 金融与发展** - [增长还是普惠? - 金融与发展 (Markdown version)](/-/media/files/publications/fandd/article/2018/june/zh/ostry.pdf.md){rel="alternate" type="text/markdown"} - [增长还是普惠? - 金融与发展 (PDF)](/-/media/files/publications/fandd/article/2018/june/zh/ostry.pdf){rel="external" type="application/pdf"} - **Growth-Equity Trade-offs in Structural Reforms, WP/18/5, January 2018** - [Growth-Equity Trade-offs in Structural Reforms, WP/18/5, January 2018 (Markdown version)](/-/media/files/publications/wp/2018/wp1805.pdf.md){rel="alternate" type="text/markdown"} - [Growth-Equity Trade-offs in Structural Reforms, WP/18/5, January 2018 (PDF)](/-/media/files/publications/wp/2018/wp1805.pdf){rel="external" type="application/pdf"} - **sdn1402 - Executive Summary** - [sdn1402 - Executive Summary (Markdown version)](/external/pubs/ft/sdn/2014/sdn1402.pdf.md){rel="alternate" type="text/markdown"} - [sdn1402 - Executive Summary (PDF)](/external/pubs/ft/sdn/2014/sdn1402.pdf){rel="external" type="application/pdf"} --- _Source: https://www.imf.org/en/publications/fandd/issues/2018/06/economics-of-promoting-inclusive-growth-ostry_