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Title page 1

Contents 5

Abbreviations 11

Contributors 13

Acknowledgments 15

Foreword by Tetsushi Sonobe 16

Foreword by Rachel Thompson 18

1. Introduction: Pursuing Inclusive Economic Development in Asia 19

1.1. Introduction 19

1.2. Rapid Economic Growth in a Latecomer: Cambodia 21

1.3. Legacies of History 22

1.4. Economic Openness 23

1.5. Life Satisfaction 24

1.6. Financial Inclusiveness 25

1.7. Vulnerability and Food Security 27

1.8. Technical Issues: Methodologies and Measurement 28

1.9. Designing "Good Policies" 29

1.10. Concluding Remarks 30

References 32

2. Peter McCawley: Development Economist with a Mission 33

2.1. Introduction 33

2.2. Career and Professional Life 34

2.3. Major Academic Outputs 36

2.3.1. Indonesian Economic Development 37

2.3.2. Infrastructure in Developing Asian Economies 39

2.3.3. Official Histories of Major Institutions 42

2.4. Some Personal Reflections 44

References 47

3. Has Globalization Led to Inclusive Economic Growth in Asia? 48

3.1. Introduction 48

3.2. Globalization and Development: A Snapshot 49

3.3. Impact of Globalization 53

3.4. Globalization and Inequality 58

3.4.1. How to Respond? 65

3.5. Conclusions 69

References 71

4. From Economic Miracle to Regional Divides: Rethinking Inclusive Growth in Malaysia 75

4.1. Introduction 75

4.2. Quantitative Account of Malaysian Miracle: Growth with Inclusion 77

4.3. Quantitative Account of Regional Disparities: The East-West Divide 80

4.4. Qualitative Account of East-West Divide 85

4.5. Discussion 88

4.6. Conclusion 93

References 95

5. Structural Transformation and Inclusive Growth in Cambodia: Country Diagnostic and Product Space Analyses 99

5.1. Introduction 99

5.2. Inclusive Growth and Diversification 100

5.3. Key Constraints to Diversification and Inclusive Growth 105

5.3.1. Product Space Analysis 111

5.3.2. Structural Transformation and Product Space Analysis 114

5.4. How Can Cambodia Diversify and Upgrade Its Exports? 122

5.5. Conclusion 131

References 133

6. Foreign Direct Investment and Structural Transformation: The Case of Viet Nam 135

6.1. Introduction 135

6.2. Data 138

6.2.1. Viet Nam Enterprise Survey 138

6.2.2. Viet Nam Labor Data 139

6.3. Foreign Direct Investment and Employment in Viet Nam 139

6.3.1. The Evolution of Manufacturing Employment in the FDI Sector 139

6.4. Spatial Distribution of Foreign Direct Investment Intensity 144

6.4.1. Foreign Direct Investment and Sectoral Reallocation in Viet Nam 146

6.5. Regression 152

6.5.1. The Model 152

6.5.2. Results 154

6.6. Conclusion 157

References 159

7. Effects of a New Subnational Banking Regulation in Indonesia on Regional Economic Outcomes 161

7.1. Introduction 161

7.2. Context 164

7.2.1. Aceh Economy 164

7.2.2. Islamic Banking in Indonesia 165

7.2.3. The Qanun on the Financial Sector 167

7.2.4. Impacts of the Qanun: Descriptive Findings 168

7.3. Methodology and Data 171

7.4. Results 172

7.4.1. The Impact of the Qanun on the Financial Sector 172

7.4.2. The Impact of the Qanun on Social Development 176

7.4.3. Robustness Check: Placebo Analysis 179

7.5. Conclusion 180

References 182

Appendix 185

8. Financial Inclusion Through More Rural Banks? Evidence from Pakistan's Bank Branch Licensing Policy 196

8.1. Introduction 196

8.2. Institutional Background and Branch Licensing Policy 200

8.2.1. Banking and Financial Inclusion in Pakistan before 2004 200

8.2.2. Branch Licensing Policy 201

8.3. Data 202

8.4. Analysis 203

8.4.1. Descriptive Analysis 203

8.4.2. Counterfactual Analysis 207

8.5. Results 208

8.6. Discussion 216

References 218

Appendix 221

9. Tax Decentralization and Accountability: A Natural Experiment from Indonesia 224

9.1. Introduction 224

9.2. Institutional Setting 226

9.2.1. Decentralization in Indonesia 226

9.2.2. Property Tax and the Devolution in 2009 230

9.3. Data 232

9.4. Empirical Strategy 235

9.5. Results 239

9.5.1. Main Results 239

9.5.2. Event Study Regression 244

9.6. Conclusion 246

References 248

Appendix 250

10. Long-Term Economic Impacts of Dutch Railroads in Java, Indonesia 253

10.1. Introduction 253

10.2. Dutch Railroad System in Java 256

10.3. Data and Descriptive Statistics 258

10.4. Empirical Strategy 262

10.5. Results 262

10.5.1. Main Results 262

10.5.2. Persistence Mechanisms 264

10.6. Conclusions 267

References 269

Appendix 272

11. What Contributed to Inclusive Growth? Cases of Three Asian Countries 274

11.1. Introduction 274

11.2. Measurements 276

11.2.1. RG index and its interpretation 276

11.2.2. Decomposition 279

11.3. Data 281

11.4. Result 286

11.4.1. RG index over time 286

11.4.2. Decomposition 287

11.5. Concluding Remarks 294

References 295

Appendix 296

12. Poverty and Vulnerability in Rural Bangladesh 303

12.1. Introduction 303

12.2. The Vulnerability to Poverty Measure 305

12.3. Data 308

12.3.1. Attrition and Split Households 309

12.4. Poverty 309

12.5. Estimation of Vulnerability 311

12.5.1. Identification of household vulnerability to poverty 311

12.5.2. Categorization of poverty and vulnerability 313

12.6. Characteristics of the Vulnerable: Econometric Analysis 316

12.7/12.6. Summary and Concluding Remarks 319

References 321

Appendix 323

13. From Experiment to Impact: How Randomized Trials Shape Development 332

13.1. Introduction 332

13.2. Benefits of Randomized Trials 333

13.3. Criticisms of Randomized Trials 334

13.4. Why Rigorous Evaluation Matters 336

References 338

Index 340

Tables 7

Table 3.1. Global Value Chain Participation and Share of Income Groups 64

Table 3.2. Global Value Chain Participation and Average Income of Income Groups 65

Table 5.1. Consumption per Capita, by Quintile, 2009, 2014, and 2019 104

Table 5.2. Ease of Doing Business: Cambodia versus Comparator Countries, 2015-2019 109

Table 5.3. Logistics Performance Index: Cambodia versus Comparators, Selected Years 110

Table 5.4. Cost and Time to Export and Import: Cambodia versus Comparator Countries, 2019 111

Table 5.5. Number of Products with Revealed Comparative Advantage, 1990-2021 118

Table 5.6. Distribution of Product Complexity and Export Share, 2021 119

Table 5.7. Communities of Products (RCA 〉1) in Cambodia, 1980-2021 121

Table 5.8. Option 1: Nearby Frontier Products, 1.5 Standard Deviation Below Mean Distance, 2021 126

Table 5.9. Option 2: Middle-Distance Products, 1.0 Standard Deviation from Mean Distance, 2021 127

Table 5.10. Option 3: More Middle-Distance Products, 0.5 standard deviation from Mean Distance, 2021 129

Table 6.1. Share of Foreign Direct Investment Manufacturing Employment by Industry 143

Table 6.2. Share of Foreign Direct Investment Manufacturing Firms and Employment by Region 144

Table 6.3. Descriptive Statistics 153

Table 6.4. Effects of Foreign Direct Investment on Sectoral Employment 154

Table 6.5. Effects of Foreign Direct Investment on Sectoral Employment by Gender 156

Table 7.1. 5-Year Impacts of the Qanun on Financial Output, Inequality, and Poverty 176

Table 8.1. Number of Branches by Status 205

Table 8.2. Branch Networks' Rural Population Coverage by Scenarios 215

Table 9.1. Consolidated Public Spending in 2008 227

Table 9.2. Comparison of Law No. 34/2000 with Law No. 28/2009 229

Table 9.3. Comparison of Laws Regarding Urban and Rural Land and Building Tax 231

Table 9.4. Number of Districts that Collect Property Tax 232

Table 9.5. District Fiscal Characteristics (average 2009-2018) 234

Table 9.6. Local Election and Year of Property Tax Adoption (number of districts that tax-decentralized decentralization) 238

Table 9.7. Standard Two-way Fixed-Effects Estimates 240

Table 9.8. Two Stage Two-way Fixed-Effects Estimates 241

Table 9.9. Two Stage Two-way Fixed-Effects Estimates with Higher Intensity Reforms 243

Table 10.1. Characteristics of the Location of Dutch Railroads in Java 261

Table 10.2. Dutch Railroads and Their Impacts on Contemporary Economic Development in Java 263

Table 10.3. Dutch Sunk Investments in Java 265

Table 10.4. Contemporary Investments in Java 266

Table 11.1. Mean of Covariates 284

Table 12.1. Proportion of Households Vulnerable to Income Poverty by Survey Wave and Division 313

Table 12.2. Poverty and Vulnerability Categorization (proportion) 314

Figures 8

Figure 3.1. Global Trade and Poverty 50

Figure 3.2. Trend of Global Value Chain-related Trade 51

Figure 3.3. Global Value Chain Participation in Asian Economies 53

Figure 3.4. Global Value Chain Participation and Various Growth Measures 55

Figure 3.5. Trade Openness and the Gini Index in Asia 58

Figure 3.6. Trends of Gini Indexes in Asia 59

Figure 3.7. Share of Income of the Bottom 50% in Asia 60

Figure 3.8. Share of Income of the Top 10% in Asia 61

Figure 3.9. Average Income of the Bottom 50% and the Top 10% in Asia 62

Figure 4.1. Poverty Headcount Ratio at Different Poverty Lines, 1970-2019 78

Figure 4.2. Trends in Poverty Rates in East and West Malaysia (selected states), 1970-2019 81

Figure 4.3a. East-West Difference in Income Poverty: Overall Trends, 2004-2016 82

Figure 4.3b. East-West Difference in Income Poverty: Rural-urban Trends, 2004-2016 83

Figure 5.1. Sectoral Contributions to GDP Growth, 2010-2023 (% year-on-year) 101

Figure 5.2. Poverty Rates, 2009, 2014, and 2019/2020 103

Figure 5.3. Food Poverty, 2009, 2014, and 2019 103

Figure 5.4. Gini Index 2009, 2014, and 2019/2020 104

Figure 5.5. PISA Scores for Mathematics, Science, and Reading at Age 15 Comparing Cambodia with Regional Peers, 2022 106

Figure 5.6. Labor Force Educational Attainment, 2015 versus 2021 (% of working-age population) 107

Figure 5.7. Economic Complexity and GDP per Capita, 2021 113

Figure 5.8. Economic Complexity Indexes for Selected Countries, 1980-2021 113

Figure 5.9. Product Space Maps of Cambodia, Selected Years 117

Figure 5.10. Products with Comparative Advantage and Exports per Capita for Selected Countries, 2021 120

Figure 5.11. The Basic Trade-Off between Distance, Product Complexity, and Opportunity Gain, 2021 123

Figure 5.12. Unexploited Export Products of Cambodia, 2021 124

Figure 5.13. Frontier Products of Cambodia, 2021 125

Figure 6.1. Manufacturing Employment by Firm Ownership 140

Figure 6.2. Foreign Direct Investment Manufacturing Employment Share by the Broad Sector 142

Figure 6.3. Foreign Direct Investment Employment Share by Broad Sector 142

Figure 6.4. Foreign Direct Investment Employment and Firms by Region 145

Figure 6.5. Evolution of Sectoral Employment (in share %) 147

Figure 6.6. Correlation Between Provincial Sectoral Employment and FDI-intensity 150

Figure 7.1. Output Growth of the Financial Sector in Aceh and Other Provinces (% year-on-year) 169

Figure 7.2. Percentage of Individuals with Account in Any Formal Institution 170

Figure 7.3. Percentage of Households that Have Had Loans at a Bank (% of all households) 171

Figure 7.4. Financial Sector Output and the Gap between Aceh and Synthetic Aceh 174

Figure 7.5. Growth Output of Financial Sector and the Gap between Aceh and Synthetic Aceh 175

Figure 7.6. Poverty Rates and the Gap between Aceh and Synthetic Aceh 178

Figure 7.7. Gini Index and the Gap between Aceh and Synthetic Aceh 178

Figure 8.1. Conceptualization of Branch Network's Rural Population Coverage 207

Figure 8.2. Compliance with the 20% Quota Rule and Number of RUA Branches 209

Figure 8.3. Proportion of Rural Population within 5 Kilometers of a Bank Branch 210

Figure 8.4. Proportion of Households Reporting Always or Often Use Bank Services by Region 211

Figure 8.5. Number of New Rural Branches by Definitions of Rurality 212

Figure 8.6. Proportion of Rural Population within 5 Kilometers of a Bank Branch by Scenarios 214

Figure 9.1. Number of Districts that Decentralized Property Tax 233

Figure 9.2. Event Study on the Effect of Tax Decentralization 245

Figure 11.1. Trends of the RG Index 286

Figure 11.2. Composition Effects by Categories: Per Capita Expenditure 289

Figure 11.3. Composition Effects by Categories: Per Capita Expenditure (longest time interval) 292

Figure 12.1. Proportion of Households Vulnerable to Income Poverty by Survey Wave (based on hybrid poverty threshold and 50% probability... 312

Figure 12.2. Poverty and Vulnerability Categories 314

Figure 12.3. Panel Fixed Effects Regression Exploring Association of Various Household and Community Factors with Poverty and Vulnerability 318

Boxes 10

Box 1. Product Space Analysis 115

Appendix Tables 188

Table A7.1. Province Weights in Synthetic Aceh for Financial Output and its Growth 188

Table A7.2. Financial Output Sector Predictor means before the Qanun 189

Table A7.3. Growth of Financial Output Sector Predictor means before the Qanun 189

Table A7.4. Province Weights in Synthetic Aceh for Poverty Rate and Gini Index 190

Table A7.5. Poverty Rate Predictor means before the Qanun 191

Table A7.6. Gini Index Predictor means before the Qanun 191

Table A8. Branch Networks' Rural Population Coverage Using Populated Settlements as Counterfactual Locations 223

Table A9. Imputation Estimates (Borusyak, Jaravel, and Spiess 2024) 250

Table A10. Data Sources and Variables 272

Table A11.1. Recentered Influence Function Regression for Expenditure Per Capita: α = 0.5 299

Table A11.2. Recentered Influence Function Regression for Expenditure Per Capita: α = 0.5 301

Table A12.1. Status of Households Surveyed in 2011/12, 2015, and 2019 BIHS 323

Table A12.2. Attrition Probit for BIHS, 2011/12-2019 323

Table A12.3. Poverty Trends in Bangladesh 2000 to 2022, Bangladesh Bureau of Statistics 325

Table A12.4. Poverty Transition Matrix: Empirical Probability of Transition Poverty Status from One Period to Later Period(s) 325

Table A12.5. Summary Statistics by Survey Round 326

Table A12.6. Panel Fixed Effects Regression Exploring Association of Various Household and Community Factors with Poverty and Vulnerability 327

Appendix Figures 192

Figure A7.1. Placebo Gap: Output of the Financial Sector 192

Figure A7.2. Placebo Gap: Output Growth of the Financial Sector 192

Figure A7.3. Placebo Gap: Poverty Rate 193

Figure A7.4. Placebo Gap: Gini Index 193

Figure A7.5. In-time Placebo Gap: Output of the Financial Sector 194

Figure A7.6. In-time Placebo Gap: Output Growth of the Financial Sector 194

Figure A7.7. In-time Placebo Gap: Poverty Rate 195

Figure A7.8. In-time Placebo Gap: Gini Index 195

Figure A8. Proportion of Rural Population within 5 Kilometers of a Bank Branch Using Populated Settlements as Counterfactual Locations 222

Figure A9. Excerpt of District Regulation Regarding Tax Decentralization 251

Figure A11. Mean of Covariates 296

Figure A12.1. Proportion of Households in Different Poverty Transition Categories 330

Figure A12.2. Panel Fixed Effects Regression Exploring Association of Various Household and Community Factors with Chronic and Transient Poverty 331