Event ReportsPublished on May 16, 2016
Rapid urbanisation leads to increase in inequality

Though Millennium Development Goals (MDGs) were successful in general, they failed to address rising inequalities among different categories of the demographic, according to a study titled  “Trade, Infrastructure and Inequality: A Cross Country Analysis” by Prof. Saikat Sinha Roy and Rudra Prasad Roy of the Jadavpur University.

According to the paper, there has also not been uniform progress of the MDGs across regions and populations. In this context, and following from the Rio+20 promises, SDGs guarantee the inclusion of marginalised and disempowered groups for reducing inequality and eradicating poverty.

This study was one of three papers presented at the first seminar under the Agenda for Discourses on Development Alternatives (ADDA) seminar series, held on April 23 at ORF Kolkata.

In the inaugural session, ORF Kolkata Director Ashok Dhar said the overarching aim of this seminar series is to address topical development issues in India. He said the various seminars under this series will reflect on a number of development issues which are of concern for India in the recent past and will be important in her future development initiatives aiming toward sustainable future. Dr. Nilanjan Ghosh, Senior Fellow, ORF, said this initiative aims to engage academics, experts and students with cutting edge research from a multi-disciplinary perspective.

Prof. Saikat Sinha Roy and Rudra Prasad Roy presented a detailed analysis of the impact of trade liberalisation and infrastructure development on inequality. The paper uses time-series data of 150 countries to create a comprehensive data set to estimate the impact of trade liberalisation on inequality for the period 1991- 2014. The authors explored the determinants of income inequality with regard to Sustainable Development Goals (SDGs) and recommended policies geared towards accomplishing specific inequality related targets of SDGs.

The study observes that there are ethical grounds for the reduction of inequality besides having a functional impact on economy and estimates the effect of cross country trade and infrastructure on inequality. Using the generalised method of moments (GMM) method of dynamic panel data analysis, the authors conclude that trade openness and FDI have a negative impact on inequality while the imposition of tariff aggravates the circumstances.  Further, rapid urbanisation leads to an increase in inequality and that standard of income distribution is found to be reduced with the development of physical, financial and social infrastructures. The findings of the study therefore stand to have vital policy implications for achieving specific inequality related targets.

Prof. Pal pointed out that there is often a standard criticism in cross country panel data analysis on trade liberalisation that the causation between trade liberalisation and the economic outcome under study may not be direct. He added that trade liberalisation is often preceded by institutional reforms. And possibly these institutional reforms have more impact on poverty alleviation rather than trade liberalisation. Similar questions can be asked for this paper and a possible clarification of this critique was suggested to be included in the paper. Moreover, the period under consideration witnessed some major economic events including the inception of WTO, Asian financial crisis of 1997, the dot com bust of 2001 and the financial crisis since the collapse of the Lehman Brothers since 2008. Some structural break may have taken place during these events and it may be worthwhile to empirically test these.

Prof Pal said globally inequality has increased in most regions except in some of the European countries. It may be an interesting exercise to check the relationship with inequality and other economic variables with and without European countries.

The paper was commented upon by Prof. Parthapratim Pal from IIM Calcutta.

Prof. Biswatosh Saha and Prof. Nimruji Jammulamadaka, both from IIM Calcutta, presented a paper on “Revealed breakdowns in pollution control: Institutional fractures and elusive dialogues”.

Prof. Jayanta Bandyopadhyay, Professor Retired, IIM Calcutta was the discussant for the session.

Prof. Saha explained the impact of water pollution caused by the chemical industries in Vapi, an industrial city and municipality in Valsad district in Gujarat. Vapi, the largest chemical industry cluster in India, came into existence from 1968. The city has come under the surveillance of the Supreme Court, the Ministry of Environment, Forest and Climate Change, and prominent international environmental NGOs for the host of issues related to effluents discharged by the polluting industries and its impact on the immediate surroundings.

The authors presented an overview of the expected institutional relationships among legal, social, economic, political and administrative institutions with the possible types of action; anticipatory or obligatory, each institution has taken or can take to address the concerns of Vapi.

They said a search for rules in the economic and socio-political domain that would enact the principles of environmental rights would require actors to base themselves on anticipatory action. According to them, dependence on court mediated processes has made the arena too tilted to promote ‘obligatory action’ — leading to an institutional fracture. The authors envisage a greater engagement at sub-judicial levels of state administration, private negotiations etc. to seek dialogues on finding norms and rules that would share the ‘costs’ of industrial activity in a more socially acceptable way.

The authors said creating institutional means of access, apart from the court mediated route, for affected constituencies, like the fishing folks, who suffered from lagged ecosystem destruction and were socially distant and ill-informed and poorly-endowed to pursue the litigation route, to participate in the evolution/formation of norms/rules would be an important step.

Commenting on this paper, Prof. Jayanta Bandyopadhyay, formerly with the IIM Calcutta, said the case of Vapi essentially re-emphasises on defining a new model of economic growth, which is not guided mainly by numbers but is socially and ecologically informed; a new paradigm of economic models that can assess the social completeness of economic growth and can internalise environmental degradation resulting from unhampered growth. Such models may require restructuring of the existing governance mechanism that appears to be crippled with self-imposed paralysis, evident in Vapi and elsewhere.

The third paper, titled “Analysis of India-Malaysia CECA on Edible Oil — A possible template for FTAs in general”, was a joint work by ORF Kolkata scholars Dr. Avishek Konar and Dr. Nilanjan Ghosh. This paper presented a microeconomic model describing the building blocks of decision making by constituents of the commodity value chain in the edible oil sector. The paper challenges the conventional wisdom of analysing FTAs solely from the macroeconomic perspective of trade balance, and suggested that different participants of the value chain need to be taken into account in trying to come with a measure of social welfare, which could claim to be more inclusive. It focuses on the India-Malaysia Comprehensive Economic Cooperation Agreement (CECA), with special stress on data from the edible oil sector.

The paper puts forth a model that links the edible oil sector with the oilseed sector, and examines the impact of tariff reduction (or increase) on well-being of various stakeholders of the value chain, namely, consumers (through consumer surplus), processors (through producer surplus), labour or employment (through wage-bill), farmers (through farmers’ surplus), and the government (through revenue generated). It considers the sum of the changes in consumer surplus, producer surplus, farm income from the supply of oil seeds, wage bill and government revenue, and looks at the change in this total amount — social surplus — because of the changes in the tariff regime. This was done on the basis of an econometric framework entailing simultaneous equation systems.

The discussant of this paper was Dr. Geethanjali Nataraj, Visiting Fellow, ORF Delhi.

This report is prepared by Dr. Preeti Kapuria, Associate Fellow, ORF Kolkata.

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