Economics of Inclusive Business

Abstract

The focus of my thesis is to examine the economics of inclusive business and its implications on government policy design and firm behaviour. Inclusive business is a business model of including the Bottom of the Pyramid (BoP) or the poor as consumers, employers, and/or supply chain partners in the business value chain while proactively addressing the poor’s barriers to inclusion while the firm remains profitable.

While economic theory provides the foundation in understanding a firm’s profit maximizing behaviour, the emerging strand of literature on inclusive business (IB) lacks clear modelling of what a genuine IB entails and requires further robust empirical treatment. While extant literature examines the dual objective of a firm to maximize profit and contribute to social welfare, as concretized in corporate social responsibility (CSR) and social enterprises (SE), it does not capture the definition of firm inclusivity and has shortcomings in explaining implications of an inclusive business policy.

Given the integral role of the private sector in contributing to social welfare and the potential of the BoP market in emerging economies, IB is seen as an emergent policy tool to create a more inclusive economic development. It is therefore imperative to be clear on what inclusive business is and its goals, what the accreditation criteria are, and what policy incentives can be designed to address trade-offs and ultimately achieve IB goals.

By modelling IB policy and using 677 firm level two-period panel data from the Philippines, this thesis hopes to contribute the following: 1) an economic perspective in theorizing inclusive business (Chapter 2); 2) a proposed firm inclusivity criteria by modelling the commitment of an inclusive firm (Chapter 3); 3) survey questions that characterise IB (Chapter 4); and 4) an empirical analysis of a two-period panel data on survival of inclusive sellers (Chapter 5).