dimensions of

Economic Development

2

Lecture layout

Defining Development Understanding the issues of

Development Measurement of Development Development history of Bangladesh Contemporary issues of Development

3

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

4

Economic Growth Using measures of

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.But this could be just

around the corner!This might be a common picture……

5

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

6

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

7

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

8

Therefore…

Economic development means:

Economic growth +

institutional improvements

9

How do we understand the level of economic development?

10

Development

Level of poverty Absolute poverty Relative poverty

Inequality Progress – what constitutes progress?

11

What is Poverty?

Poverty has both ‘relative’ and ‘absolute’ meanings.

Romanian gypsies – is this man living in poverty?

Or is this villager in rural China?

12

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.

13

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

14

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.

15

Lorenz Curve, Max Lorenz (1905)

16

Kuznets Curve, Simon Kuznets (1955)In

equa

lity

Per capita income

The inverted-U

17

Measurement of Progress

Human Development Index (HDI)

Millennium Development Goals (MDG)

18

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.

19

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

20

Millennium Development Goal (MDG)

Goals set by the United Nations

For attaining global development standards, broadly, by the year 2015

21

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

22

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

23

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

24

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 non-agricultural sector

• 3.3- Proportion of seats held by women in national parliament

25

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

26

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

27

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

28

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

29

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

30

MDG is no doubt a good set of targets but misses important issues for developing countries…

Political freedom Self esteem Attitude

What should be the path of development?

Where to start??

We have serious issues like low income, poor health & sanitation, inequality, diseases, lack of good governance…

32

Historical debate on the path of Economic Development

Balanced growth? (Nurske)

Or

Unbalanced growth? (Hirschman)

33

Debate continued…

Capitalism? (Marcantilists, Physiocrats)

OrSocialism? (Marx)

34

Debate continued…

Trickle down? (latest example: tax cut during the financial crisis)

Or Big push? (Rosenstein-Rodan)

35

Debate Continued…

Industrialized?

Or

Agro-based?

36

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

37

Development level compared

Issue Bangladesh USA

Per capita income (PPP) $ 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

Interest rate 16% 3.25%

Life expectancy 66.70 years 78.11 years

Literacy rate 49.10% 99%

38

Where do we need to look at…Major Sectors of the Economy

Real Sector

Fiscal Sector

Monetary Sector

External Sector

39

Components of the four sectors

Real Sector

• Inflation

• Real GDP

• Price Level

• Wage Rate

• Exchange Rate

Fiscal Sector

• Revenue

• Expenditure

• Govt. debt

External Sector

• Import

• Export

• Capital Flow

Monetary Sector

• Interest rate

• Money supply

• Reserve

40

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

41

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

42

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

History of Actions Taken

44

Government ExpenditureExpenditure as % of GDP

0

2

4

6

8

10

1219

99-0

0

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

%

Revenue Exp. Development Exp.

45

ADP allocationADP Sectorwise Allocation (% of total)

0

5

10

15

20

25

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

46

Credit for AgricultureDisbursement of Agricultural Credit

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1000020

02-0

3

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

cror

e ta

ka

47

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

How has been the economic development of Bangladesh?

49

Growth RateGDP growth rate at constant price

5.4

5.6

5.8

6

6.2

6.4

6.6

6.820

03-0

4

2004

-05

2005

-06

2006

-07

2007

-08

%

50

Sectoral contribution to GDP

0

5

10

15

20

25

20

00

-01

20

01

-02

20

02

-03

20

03

-04

20

04

-05

20

05

-06

20

06

-07

20

07

-08

%

0

0.5

1

1.5

2

2.5

3

Agriculture Indus try Retail trade

Education (saxis ) Health care (saxis ) Power (saxis )

51

PovertyPopulation below poverty line (DCI method)

0

5

10

15

20

25

30

35

40

45

50

1991-92 1995-96 2000 2005

%

Absolute Relative

52

Inequality

Income distribution

0

5

10

15

20

25

30

35

40

Dec

ile-1

Dec

ile-2

Dec

ile-3

Dec

ile-4

Dec

ile-5

Dec

ile-6

Dec

ile-7

Dec

ile-8

Dec

ile-9

Dec

ile-1

0

%

2005 2000

Gini Coefficient:2005: 0.4672000: 0.451

53

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).

Contemporary Focus of Development

Sustainability

Environmental degradation

“One generation plants a tree; the next generation gets the shade.”Chinese Proverb

56

The 21st CenturyClimate 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

57

Charting a course away dangerous climate changeThe sustainable emissions pathway is as follows

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

58

BUT….

Reduction of carbon emission means reduction 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?

59

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

60

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

Thank you