geographical location such as coastal regions. Alongside these market forces, the forces of technological change are leading to more capital intensive and skills intensive production, and to rising skill premia, both of which push for greater inequality given the unequal distribution of wealth and of human capital. There is debate as to which of the two, technology or trade, is the dominant explanation, but that both are important is now accepted.<sup>14</sup> It is unlikely that these fundamental forces of technology and markets will reverse in the coming 25 years. Thus, without proactive policy, there will be a strong tendency for inequality to increase and for the goal of eradicating poverty to move further away.

Inequality is a key aspect of social wellbeing and may well deserve a place alongside poverty as a key dimension of the post-2015 framework of goals and targets. However, inequality is also detrimental to the achievement of the poverty reduction goal since it can dissipate the impact of economic growth on poverty reduction. For example, calculations for Asia show that if inequality had not risen, then economic growth could have lifted almost a quarter of a billion more people out of poverty over the last two decades.<sup>15</sup> Similarly, for Brazil between 1998 and 2009, had inequality not declined to the extent it did, annual growth would have had to have been 4 percentage points higher to achieve the same poverty reduction over this period.<sup>16</sup> Thus measures to mitigate inequality will be important in the post2015 agenda.

Consider now a second feature of development reality and development discourse of the past quarter century--the central role that risk and vulnerability play in the lives of the poorest of the poor. These vulnerabilities, of ill health for example, were always present, but research and analysis has helped to illuminate their extent, magnitude and nature<sup>17</sup> . Further, there is also evidence that these vulnerabilities have grown, as reflected in climate change driven natural disasters, infectious diseases, financial crises and other risks of globalization.<sup>18</sup> The risks impact the MDGs and the post-2015 discourse in two ways:

- Firstly, the risks faced by the poor and their impact on wellbeing and peace of mind are not fully captured in standard poverty measures. Qualitative research brings this out strongly in the “Voices of the Poor.”<sup>19</sup> In quantitative terms, the costs of this risk are like having an even lower income, for the poor. Further, if this adjustment is made for risk and vulnerability, many of those currently above the poverty line will have equivalent incomes below the poverty line, so that standard approaches may understate actual poverty.<sup>20</sup>

- Secondly, shocks and risks can have a medium term effect on household productivity. For example, the effects of a shortfall in nutrition on body development for babies during difficult times, is not compensated fully by an equal and opposite improvement in nutrition in good

> 14 This large literature is reviewed in Asian Development Bank (2012).

> 15Asian Development Outlook (2012).

> 16 Lustig, Ortiz-Juarez and Lopez-Calva (2011)

> 17 There is a huge literature, of course. See, for example, Dercon (2004), Chronic Poverty Research Centre (2009), and the special issue of the _Journal of Development Studies_ in 2009, including papers by Menon (2009), Bene (2009) and Heltburg and Lund (2009).

> 18 See, for example, Di Giovanni and Levchenko (2008) and  Kose, Prasad and Terrones (2005)

> 19 Narayan (2000)

> 20 There is a large literature on measurement of poverty in the context of risk and vulnerability. For recent papers see Ligon and Schecter (2002), DuclosArrar and Giles (2010), and the papers in Addison, Hulme and Kanbur (2009).

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