Abstract
This paper proposes a new quality of growth index for developing countries. The index encompasses both the intrinsic nature and social dimensions of growth, and is computed for over 90 countries for the period 1990–2011. The approach is premised on the fact that not all growth is created equal in terms of social outcomes, and that it does matter how one reaches from one level of income to another for various theoretical and empirical reasons. The paper finds that the quality of growth has been improving in the vast majority of developing countries over the past two decades, although the rate of convergence is relatively slow. At the same time, there are considerable cross-country variations across income levels and regions. Finally, empirical investigations point to the fact that main factors of the quality of growth are political stability, public pro-poor spending, macroeconomic stability, financial development, institutional quality and external factors such as FDI.
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Notes
Apart from income levels, the HDI also encompasses important aspects of human development such as education and health.
The social progress index encompasses three main dimensions: (1) the basic human needs, (2) the foundations of wellbeing, and (3) opportunity.
Key trends and countries’ ranks are broadly robust to the direct use of GDP levels instead of GDP per capita.
A more intuitive indicator is the HHI of GDP value added by sector. However, widespread missing data prevent us from using such data. More decisively, output diversification is highly correlated with exports diversification (Papageorgiou and Spatafora 2012).
Net external demand equals to the difference between exports and imports, both as percent of GDP.
This concern is somewhat addressed by accounting for the volatility of growth in the index.
Several other opportunity variables (such as employment, inequality or poverty itself) and socially-friendly policy measures (including public spending allocated to health and education) are relevant candidates for capturing the pro-poor dimension of growth but are not considered in the construction of the QGI because of data limitation. Nevertheless, for the sake of robustness checks, we added the following three inclusiveness-related sub-components to the social dimension of the baseline QGI: educational equality (ratio of female to male primary schooling enrollment), geographical equality (ratio of rural to urban access to improved water), and generational equality (youth employment), using data from the World Bank’s World Development Indicators. The associated QGI is not qualitatively different from the baseline QGI (see “Appendices 10 and 11”). Note, however, that accounting for these variables shrinks the sample size, with the observations falling to 336, down from 372 in the baseline.
Health and education are key components of the very well-known Human Development Index (Klugman et al. 2011).
Note that using average years of primary schooling (instead of primary schooling completion rate does not qualitatively change the computed baseline QGI, though leading to a substantial reduction of the sample, with observations falling to 316, down from 372 in the baseline (see “Appendices 10 and 11”).
Given that the equal weights are somehow arbitrary; we conduct a sensitivity test by using alternative weights in the Sect. 4.
This aggregating approach is also used for the construction of the EVI (Guillaumont 2009).
This assumption underpins the construction of the popular HDI.
The country sub-sampling in terms of income refers to the World Bank’s classification of countries.
An approximation of the funds effectively transferred to developing countries, is computed by subtracting from total aid technical cooperation because it comprises education or training fees of nationals from recipient countries at home or abroad and payments to consultants or advisors for recipient countries. Furthermore, emergency flows (humanitarian aid, food aid) are subtracted as they are naturally countercyclical.
Less charitably, this may rather reflect the ineffectiveness of foreign aid in improving the quality of growth in the recipient countries.
“Appendix 9” depicts signs and significance levels of the QGI’s drivers for different sub-sampling.
Note that “5” also corresponds to the interval over which the data are averaged in the calculation of the QGI.
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Acknowledgments
We would like to thank, without implication, Tidiane Kinda, Samba Mbaye, Marco Pani, and attendants at an African Department seminar. A special thank you to Promise Kamanga for excellent research assistance.
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Appendices
Appendix 1
See Appendix Table 4.
Appendix 2. Dealing with Missing Observations in the Primary School Completion Rate
Observations for primary school completion rate are missing for some countries. In order to avoid reducing considerably the sample size when using this indicator as a proxy for the social dimension of the quality of growth, we estimate these missing observations according to the following approach:
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1.
First, we compute for each country the primary completion rate (Complest) by dividing the average years of primary schooling (from Barro and Lee 2013) with the average duration of primary school (from WDI, 2010).
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2.
Second, to ensure that the computed completion rates (Complest) are consistent with the actual rates, we proceed as follows:
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For a given country at a given year, if the actual completion rate (Complact) is available, then we keep this Complact as the completion rate (Compl) to be considered for the calculation of the QGI index.
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For a given country at a given year, if Complact is missing, then we consider Complest adjusted for the average deviation between Complest and Complact (in the neighborhood of the year for which Complact is missing). The neighborhood considered spans from the 5 years preceding the year for which the observation is missing to the 5 years following the year for which the observation is missing.Footnote 19
$$Compl_{it} = Compl\_est_{it} + \lambda_{it}$$where i et t stands for country i and period t, respectively, with \(\lambda_{it} = mean(Compl\_act_{ij} - Compl\_est_{it} ),\quad j = \overline{t - 4,\;t + 4}\).
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Appendix 3
See Appendix Table 5.
Appendix 4
See Appendix Table 6.
Appendix 5
See Appendix Table 7.
Appendix 6
See Appendix Table 8.
Appendix 7
See Appendix Table 9.
Appendix 8
See Appendix Table 10.
Appendix 9
See Appendix Table 11.
Appendix 10
See Appendix Table 12.
Appendix 11
See Appendix Table 13.
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Mlachila, M., Tapsoba, R. & Tapsoba, S.J.A. A Quality of Growth Index for Developing Countries: A Proposal. Soc Indic Res 134, 675–710 (2017). https://doi.org/10.1007/s11205-016-1439-6
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DOI: https://doi.org/10.1007/s11205-016-1439-6