# **IV.   EAST ASIAN GROWTH INCIDENCE CURVE**

Over the past two decades and a half, average consumption in EAP as a whole increased by more than three times (or about 5.5% per annum). The EAP GIC over the period 1988 to 2012 (Figure 6) shows how this growth was distributed along the distribution.<sup>19</sup> For example, it shows how the average consumption of the bottom 5% in 1988 compares with the average consumption of the bottom 5% in 2012. With the exception of the very top ventile group, the growth incidence was pro-rich. More specifically, the annual growth of the bottom half was lower than the growth in the mean, while the annual growth rates were relatively high among the 12<sup>th</sup> to 19<sup>th</sup> ventile (60<sup>th</sup> to 95<sup>th</sup> percentile) groups.

Growth dropped significantly for the top ventile group. This is largely explained by its relatively low growth during the Asian financial crisis period, as shown by the GICs for the separate 5-year periods between benchmark years (Figure 7). The GICs are upward sloping for almost all periods. However, it is interesting that in the most recent period, which spans the global financial crisis, growth appears to have been slightly pro-poor.

It is important to stress that the discussion so far has focused on growth rates, or relative gains, which can imply very different absolute gains in expenditures. Figure 8 shows the EAP GIC but with absolute gains (per year) in expenditure on the vertical axis. It is thus equivalent to the difference between the Pen’s Parades (or quantile functions) in 2012 and 1988.<sup>20</sup> The mean expenditure of the richest 5% of East Asians rose by nearly PPP-2011 $400 per annum between 1988 and 2012 (or more than PPP-2011 $7,000 over the entire period), compared with less than PPP-2011 $30 for the bottom 20% and around PPP-2011 $60 for the median group.

Figure 9 shows the same information somewhat differently – it shows how the total increase in consumption between 1988 and 2012 was distributed among the different ventile groups. For example, the top 5% received more than 20% of the gain, compared with less than 1% for the bottom 5%. It is striking, that the drop observed at the very top in the standard GIC (Figure 6) disappears completely when we consider absolute gains. In other words, the distribution of absolute gains has been strongly pro-rich.

The important distinction between absolute gains and growth rates can also be illustrated with a numerical example. The eleventh ventile (between 50<sup>th</sup> and 55<sup>th</sup> percentile) grew by 5.55% per year between 1988 and 2012, slightly faster than the top 5% (5.45%) (Figure 6). But the initial income of the eleventh ventile in 1988 was only PPP$601 compared with PPP$3,507 for the top 5%. By 2012, these two groups received PPP$2,196 and PPP$12,537 respectively. In other words, while both groups tripled their expenditures, one group gained PPP$1,595 while the other gained PPP$9,030, leading to very different improvements in livelihoods.

> 19 Our definition of the GIC follows Lakner and Milanovic (2016) but is slightly different from the original definition by Ravallion and Chen (2003) who plot the growth rate of consumption of a particular fractile (e.g. the 5<sup>th</sup> percentile) not the fractile group (e.g. the poorest 5%).

> 20 The Pen’s Parade is the inverse cdf, i.e. it plots income on the vertical axis for various quantiles along the horizontal axis (Ravallion, 2014b). Instead of fractile incomes, we show the average incomes of a fractile group.

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