Transcript dimensions of Economic Development

dimensions of
Economic
Development
Lecture layout
 Defining Development
 Understanding the issues of
Development
 Measurement of Development
 Development history of Bangladesh
 Contemporary issues of Development
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Common Perception about
Economic Development
More money in the pocket!!!!
But this is just one dimension of development
Economists call it ECONOMIC GROWTH….
not ECONOMIC DEVELOPMENT
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Economic Growth
 Using measures of
This might be a common
picture……
But this could be just
around the corner!
economic growth can give
distorted pictures of the
level of income in a
country – the income
distribution is not taken
into account.
 A small proportion of the
population can own a
large amount of the
wealth in a country. The
level of human welfare
for the majority could
therefore be very limited.
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Economic Growth
 Using measures of economic performance in terms of the
value of income, expenditure and output
 GDP – Gross Domestic Product

The value of output produced within a country during a time
period
 GNP – Gross National Product

The value of output produced within a country plus net
property income from abroad
 GDP/GNP per head/per capita

Takes account of the size of the population
 Real GDP/GNP

Accounts for differences in price levels in different countries
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Growth vs. Development
•Economic growth:
A measure of the value of output of
goods and services within a time period
• Economic Development:
A measure of the welfare of humans in a
society
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What is Welfare about?





Quality education
Strong social safety
High living standard
Good medical service
Technological advancement etc……
All of these require improvement of the concerned institutions
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Therefore…
Economic development means:
Economic growth
+
institutional improvements
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How do we understand the level
of economic development?
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Development
 Level of poverty


Absolute poverty
Relative poverty
 Inequality
 Progress – what constitutes progress?
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What is Poverty?
Romanian gypsies – is this
man living in poverty?
Or is this villager in rural
China?
 Poverty has both ‘relative’ and ‘absolute’ meanings.
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Poverty definitions
 Absolute poverty is a situation where one is
unable to attain minimum needs.
 The World Bank defines absolute poor as
the number of people who earn $ 1.25 or
less per day.
 Relative poverty is defined as being below
some relative poverty threshold.
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Poverty in terms of income
 UN classifies countries with income less than
$750 as LDCs
 WB classifies- countries with income less than
$975 as low income countries
- countries with income $976 - $3,855 as
lower middle income countries
- countries with income $3,856 - $11,905
as upper middle income countries
- countries with income $11,906 or more as
high income countries
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Inequality
 Inequality indicates the gap between the
rich and the poor.
 If the gap is very small in a society, the
wealth distribution in that society is
considered equitable.
 Large gap increases social vulnerability.
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Lorenz Curve,
Max Lorenz (1905)
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Kuznets Curve,
Simon Kuznets (1955)
Inequality
The inverted-U
Per capita income
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Measurement of Progress
 Human Development
Index (HDI)
 Millennium
Development Goals
(MDG)
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Human Development Index
 A measure to capture the extent of
development.
 Dimensions are- life expectancy,
educational attainment and GDP per
capita.
 Index range: 0 – 1
 Close to 1 indicates developed and close
to zero indicates underdeveloped.
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HDI Map
According to HDR 2008
• Bangladesh ranks 147th with a score of 0.524
• India ranks 132nd with a score of 0.609
• Pakistan ranks 139th with a score of 0.562
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Millennium Development
Goal (MDG)
 Goals set by the United
Nations
 For attaining global
development standards,
broadly, by the year 2015
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Millennium Development Goals
(MDG) have 8 dimensions
 End poverty and hunger
 Universal education
 Gender equality
 Child health
 Maternal health
 Fighting HIV and other diseases
 Environmental sustainability
 Global partnership
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MDG Target 1:
Poverty and Hunger
 Target 1a: Reduce by half the
proportion of people living on less
than a dollar a day
 Target 1b: Achieve full and productive
employment and decent work for all,
including women and young people
 Target 1c: Reduce by half the
proportion of people who suffer from
hunger
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MGD Target 2:
Achieve Universal Education
 Target 2a: Ensure that all boys and
girls complete a full course of primary
schooling
 2.1 Net enrolment ratio in primary education
 2.2 Proportion of pupils starting grade 1 who
reach last grade of primary
 2.3 Literacy rate of 15-24 year-olds, women
and men
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MDG Target 3:
Promote gender equality and
empower women
Target 3a: Eliminate gender disparity in
primary and secondary education preferably
by 2005, and at all levels by 2015
•
3.1- Ratios of girls to boys in primary, secondary and
tertiary education
•
3.2- Share of women in wage employment in the nonagricultural sector
•
3.3- Proportion of seats held by women in national
parliament
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MDG Target 4:
Reduce child mortality
Target 4a: Reduce by two thirds the
mortality rate among children under
five
• 4.1 Under-five mortality rate
• 4.2 Infant mortality rate
• 4.3 Proportion of 1 year-old children immunized
against measles
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MDG Target 5:
Improve maternal health

Target 5a: Reduce by three quarters the
maternal mortality ratio
- maternal mortality ratio
- proportion of birth attended by skilled health personnel

Target 5b: Achieve, by 2015, universal
access to reproductive health
- contraceptive prevalence rate
- adolescent birth rate
- unmet need for family planning
- antenatal care coverage
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MDG Target 6:
Combat HIV/AIDS, malaria and
other diseases
 Target 6a: Halt and begin to reverse
the spread of HIV/AIDS
 Target 6b: Achieve, by 2010, universal
access to treatment for HIV/AIDS for
all those who need it
 Target 6c: Halt and begin to reverse
the incidence of malaria and other
major diseases
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MDG Target 7:
Ensure environmental sustainability
 Target 7a: Integrate the principles of sustainable
development into country policies and programs;
reverse loss of environmental resources
 Target 7b: Reduce biodiversity loss, achieving,
by 2010, a significant reduction in the rate of loss
 Target 7c: Reduce by half the proportion of
people without sustainable access to safe
drinking water and basic sanitation
 Target 7d: Achieve significant improvement in
lives of at least 100 million slum dwellers, by
2020
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MDG Target 8:
Global partnership for development
 Target 8a: Develop further an open, rule-
based, predictable, non-discriminatory
trading and financial system
 Target 8b: Address the special needs of the
least developed countries
 Target 8c: Address the special needs of
landlocked developing countries and small
island developing States
 Target 8d: Deal comprehensively with the
debt problems of developing countries
through national and international measures
in order to make debt sustainable in the long
term
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MDG is no doubt a good set of
targets but misses important
issues for developing countries…
 Political freedom
 Self esteem
 Attitude
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We have serious issues like low income,
poor health & sanitation, inequality,
diseases, lack of good governance…
What should be the
path of development?
Where to start??
Historical debate on the path
of Economic Development
Balanced growth?
(Nurske)
Or
Unbalanced growth? (Hirschman)
32
Debate continued…
Capitalism?
Or
Socialism?
(Marcantilists, Physiocrats)
(Marx)
33
Debate continued…
Trickle down?
(latest example: tax cut during the financial crisis)
Or
Big push?
(Rosenstein-Rodan)
34
Debate Continued…
Industrialized?
Or
Agro-based?
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Where do we need to look at to
understand the level of development?
 Per capita income
 Per capita fuel consumption
 Literacy rate
 Unemployment rate
 Life expectancy
 Social safety net
 Balance of payment
 Investment
 Fiscal scenario
 Inflation
 Interest rate
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Development level compared
Issue
Bangladesh
USA
$ 1500
$ 47,000
Electricity consumption
21.37 billion kwh
3.89 trillion kwh
Unemployment rate
2.5%
7.2%
Inflation
9.4%
4.2%
Investment
24.3% of GDP
14.2% of GDP
Budget expenditure
$12.54 billion
$ 2.97 trillion
16%
3.25%
66.70 years
78.11 years
49.10%
99%
Per capita income (PPP)
Interest rate
Life expectancy
Literacy rate
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Where do we need to look at…
Major Sectors of the Economy
Fiscal
Sector
Real
Sector
Monetary
Sector
External
Sector
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Components of the four
sectors
Real Sector
Fiscal Sector
External Sector
Monetary Sector
• Inflation
• Revenue
• Import
• Interest rate
• Real GDP
• Expenditure
• Export
• Money supply
• Price Level
• Govt. debt
• Capital Flow
• Reserve
• Wage Rate
• Exchange Rate
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Economic Development of
Bangladesh: challenges and
opportunities
 Challenges:
- Huge population
- Natural calamities
- Lac of capital
 Opportunities:
- Geographical location
- Huge supply of unskilled manpower
- Room for improving productivity
- Growing industrial base
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History of Economic Development
Strategy of Bangladesh
 Five year plans until 2002
- first FYP: 1973 – 1978
- second FYP: 1980 – 1985
- third FYP: 1986 – 1990
- fourth FYP: 1990 – 1995
- fifth FYP: 1997 – 2002
 PRSP
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History of Strategy… Priorities
 High growth rate
 Low poverty
 Improved health care
 Better education
 Housing for all
 Increased power consumption
 Better communication and transport
 Low unemployment
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History of Actions
Taken
Government Expenditure
Expenditure as % of GDP
12
10
6
4
2
Revenue Exp.
Development Exp.
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
0
1999-00
%
8
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ADP allocation
25
ADP Sectorwise Allocation (% of total)
20
%
15
10
5
0
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Agriculture
Rural Development
Transport
Housing and physical infrastructure
Education
Health
Power
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Credit for Agriculture
Disbursement of Agricultural Credit
10000
9000
8000
6000
5000
4000
3000
2000
1000
2007-08
2006-07
2005-06
2004-05
2003-04
0
2002-03
crore taka
7000
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Measures for Human
Development
 More than 15% of budget for education
for the last several FYs
 Income support for the teachers
 Free education for women
 School feeding program for reducing
drop-outs
 Free tools for education
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How has been the
economic development
of Bangladesh?
Growth Rate
GDP growth rate at constant price
6.8
6.6
6.2
6
5.8
5.6
2007-08
2006-07
2005-06
2004-05
5.4
2003-04
%
6.4
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Sectoral contribution to GDP
25
3
2.5
20
2
%
15
1.5
10
1
5
Agriculture
Industry
Retail trade
Education (saxis)
Health care (saxis)
Power (saxis)
0.5
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
0
2000-01
0
50
Poverty
Population below poverty line (DCI method)
50
45
40
35
%
30
25
20
15
10
5
0
1991-92
1995-96
Absolute
2000
2005
Relative
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Inequality
40
Income distribution
35
Gini Coefficient:
2005: 0.467
2000: 0.451
30
20
15
10
5
2005
Decile-10
Decile-9
Decile-8
Decile-7
Decile-6
Decile-5
Decile-4
Decile-3
Decile-2
0
Decile-1
%
25
2000
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Role of the State in Economic
Development of Bangladesh
 Until mid ’80s: State played major role.
 Mid ’80s to mid ’90s: Reforms towards
liberalization and reduction of state role.
 Mid ’90s to till date: Reforms continues
towards increasing role of private sector.
 Latest: Private sector is entering in the
sectors where projects are not viable
(PPP).
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Contemporary Focus
of Development
Sustainability
Environmental degradation
“One generation plants a tree;
the next generation gets the shade.”
Chinese Proverb
st
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The
Century
Climate Challenge
 The world has less than a decade to avoid dangerous climate
change that could bring unprecedented human development
reversals
 Climate change is a threat to humanity as a whole. But it is the
poor, a constituency with no responsibility for the ecological debt we
are running up, who face the most immediate and most severe
human costs
 The Human Development Report 2007/2008 calls for a ‘twin track’
approach that combines stringent mitigation to limit 21st Century
warming to less than 2 degree centigrade, with strengthened
international cooperation on adaptation
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Charting a course away
dangerous climate change
The sustainable emissions pathway is as follows
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The world – cuts of 50 percent by 2050
with a peak by 2020
Developed countries – cuts of 80 percent
by 2050
Developing countries – cuts of 20
percent by 2050
with respect to 1990
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BUT….
 Reduction of carbon emission means reduction
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


in productive activities….
Are we ready to reduce our productive
activities?
Reduction in productive capacity means slow
economic development…. Unless we shift
towards other carbon free fuel sources
BUT those sources are costly.
Can we afford them?
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Whom the climate shocks will
affect the most…
“The countries most
vulnerable are least
able to protect
themselves. They
also contribute least
to the global
emissions of
greenhouse gases.
Without action they
will pay a high price
for the actions of
others.”
Kofi Annan
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In Sum…
 Development is desirable
 However, not in expense of our future
generations
 Therefore, we need prudent policies
 Prudent policies are easy to implement
when the size of population is small and
the population is healthy
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Thank you