EW BEP L2 Growth

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BD PROFILE

LECTURE 2

CONCEPTUAL AND EMPIRICAL ISSUES ON GROWTH AND


DEVELOPMENT

Abdul Bayes
GDP, GNP…..

Gross Domestic Product (GDP) is the most widely reported measure to indicate a country’s economic
performance
GDP is the market value of all final goods and services produced in a nation during a specific period
of time, usually a quarter or a year ;

Gross National Product (GNP) is the market value of all goods and services produced by nationals
(e.g. Bangladesh citizens) wherever they are located;

GDP/GNP are expressed in monetary terms, thus rely on the markets to establish the relative
values of goods and services;
GDP, GNP CONTD……….

Output approach, income approach, expenditure approach

GDP may be measured as the total output of final goods and services. This uses the concept of value added

 Value added: difference between the value of a good as it leaves a stage of production and the costs of that good as it entered that stage
 Summing the ‘v
 alue-added’ of the different stages of production gives the total value of economic activities

GDP may be measured as the total income earned by the factors of production (i.e. land, labour and capital) derived
from producing the output => sum of factor incomes

GDP may be measured by using the expenditure on total output. It is measured initially at market prices, including
indirect taxes such as VAT but excluding subsidies.
This approach provides a very useful identity Y = C + I + G + X – M
NOMINAL AND REAL GDP

GDP can be either nominal GDP – production valued at current prices of commodities and services - or
real GDP.
Nominal GDP (p x q) can grow because of three reasons:
 Output (q) rises and prices remain unchanged
 Prices (p) rise and output remains unchanged
 Both output and prices rise

In order to control for price changes GDP can be calculated using a base set of prices. The real
measures can then be obtained by deflating GDP by a relevant price index. In other words, real GDP
reflects changes in price levels or inflation in the economy.
WHY WORRY ABOUT GDP?

Employme
Real GDP Income
nt
GROWTH AND DEVELOPMENT

Economic growth is increase in output (GDP) – upward shift of Production


Possibility Frontier (PPF);
Economic growth rate is change in output (GDP) measured as follows:
(Current year GDP – Base year GDP/Base year GDP) X 100
Economic development is economic growth plus education, health, social, political
development etc;
Economic development is an end in itself while economic growth is a means to that
end; economic growth is necessary but not sufficient condition for development.
Production Possibility
Frontiers
Capital Goods
Production
It can only produce at
points outside the PPF
inside the PPF
if it finds a way of
– e.g. point
expanding its B
means or
resources theimproves

Y1
C the productivity
country of
is not
those resources it
usinghas.all This
its will
A already

.
Yo resources
push the PPF further
outwards.

Xo X1 Consumer Goods
ECONOMIC SECTORS
(FIGURES IN BRACKETS VALUE AT CRORE TAKA, CURRENT PRICE 2018/19 PROVISIONAL.
SOURCE: BANGLADESH ECONOMIC SURVEY 2019)
Agriculture and forestry (2,46,266)
Crop and vegetables
Animal resource
Forestry resource
Fishery resource (7,4,828)

Mining and querying (44,039)


Natural gas and crude oil
Other mineral resource and mining
Industry (Manufacturing) (4,82,048)
Large and medium industries
Small industries
ECONOMIC SECTORS (CONTD)…….

Services

Electricity, gas and water resources (32541)

Electricity

Gas

Water

Construction (1,96, 656)

Wholesale and retail trade (321204)

Hotel and restaurant (25280)

Transport, storage and communication (2,25438)

Road transport

Water transport

Air transport

Associated transport service and storage


ECONOMIC SECTORS (CONTD)…
Telephone and wireless

Financial intermediation (94265)


Bank
Insurance
Others
Real estate, renting and business activities (1,86,849)
Public administration and defence (100120)
Education (72308)
Health and social services (50056)
Community, social and private services (2,60591)
Total GDP in 2018/19 at current prices Tk. 19,56,056
Growth rate at current prices 12.69%, at constant prices, 8.13%.
STRUCTURAL CHANGE IN ECONOMY:SHARE
TO GDP AND GROWTH RATE
( SOURCE: MINISTRY OF FINANCE 2017)
Sectors 1980-81 1985-86 1990-91 1995-96 2000-01 2005-06 2010-11 2014-15 2015-16
Agriculture 33.07 31.15 29.23 25.68 25.03 19.01 18.01 16.00 15.53
Industry 17.31 19.13 21.04 24.87 26.20 25.40 27.38 30.42 31.54
Services 49.62 49.73 49.73 49.45 48.77 55.59 54.61 53.58 53.12
Total 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.0

Agriculture 3.31 3.31 2.23 3.10 3.14 5.50 4.46 3.33 2.79
Industry 5.13 6.72 4.57 6.98 7.45 9.80 9.02 9.67 11.09
Services 3.55 4.10 3.28 3.96 5.53 6.60 6.22 5.80 6.25
Overall 3.74 3.34 3.24 4.47 5.41 7.18 6.64 6.54
GDP (7.11 7.28 7.86)
STRUCTURAL CHANGE IN ECONOMY:
HISTORICAL PERSPECTIVE

Declining share of agriculture in GDP;


Declining share of agriculture in employment;
Growing rural urban migration;
Service and manufacturing growth;
Foreign employment and remittance sustained increase;
Reduction in population growth rate and demographic transition.
Bangladesh experienced the same , may be relatively at a slower pace than others such as brazil, china,
south Korea, Japan, Malaysia, Indonesia, Thailand, Singapore, Taiwan experiencing sustained growth at
7%+ for 20-25 years.
SEVENTH FIVE YEAR PLAN: SECTORAL SHARE
(%)
(SOURCE: GED 2016)

Sector 2015 2016 2017 2018 2019 2020


Agriculture 15.6 15.1 14.5 14.0 13.4 12.9
Crop 7.5 7.6 7.3 6.9 6.5 6.1
28.0 28.9 29.8 30.8 31.8 33.0
Industry
Manufacturing 17.8 18.4 19.1 19.8 20.6 21.5
Service 56.4 56.0 55.7 55.2 54.8 54.1
Total 100 100 100 100 100 100
SECTORAL SHARE TO GDP (%)
SEVENTH FIVE YEAR PLAN: GROWTH RATE
(%/YEAR).
(SOURCE: GED 2016)

Sectors 2015 2016 2017 2018 2019 2020


Agriculture 3.0 3.2 3.3 3.3 3.4 3.5
Crop 1.3 1.4 1.4 1.4 1.4 1.4
Industry 9.6 10.2 10.5 10.8 11.2 11.9
10.3 10.5 11.0 11.3 12.0 12.6
Manufacturin
g
Service 5.8 6.3 6.4 6.5 6.6 6.7
GDP 6.5 7 7.2 7.4 7.6 8.0
OBSERVATIONS ABOUT GROWTH AND
STRUCTURAL CHANGE

1. Accelerating real GDP growth rate for decades – slow pace in 1970s but rapid in 1990s;
During 1970-90 growth was by 4% or less, 1990-2000, by 4.8% 2001-10 by 5.8% and 6% above in Sixth
Plan period; 7% plus in recent years preceding corona pandemic).
2. Per capita income rose from US$ 429 in 2000 to 1314 in 2015 with successful population growth control;
3. It took 20 years for per capita income to double – from US$ 200 in 1980 to 400 in 2002 but took only 7
years – from $600 in 2007 to 1400 in 2014 due to accelerating growth and deceleration population growth rate.
4. From primary to manufacturing exports – RMG!
5. Export of manpower!
6, Agricultural/Rural transformation – traditional to modern verities and irrigation, mechanized cultivation,
subsistence to commercialization – Michael Lipton’s three ‘F’s – food, farming and fertility.
7. Education, Health and Social development – women in work force, empowerment, school enrolment
(especially of girls), social indicators.
GDP GROWTH RATE (%)
PERCAPITA INCOME GROWTH
BANGLADESH’S GDP GROWTH AT CONSTANT
PRICES
SOURCE: MUJERI, M.K. (2020) , BANK PORIKROMA, SPECIAL ISSUE

Period Average yearly Annual per GDP per capita GDP per capita
Growth rate, % capita GDP (constant 2006 index, 2006 prices
(constant 2006 growth Rate, BDT) (2006=100)
prices) %, (constant 2006
prices)
1961-1970 3.77 1.01 22,700 68.41
1976-1980 3.99 1.40 18,293 55.13
1986-1990 3.62 1.07 20,490 61.75
1996-2000 4.61 2.62 25,346 76.39
2006-2010 5.52 4.60 36,637 110.42
2014-2018 6.63 5.54 54,485 164.21
A LOOK AT
SOURCE: MUJERI (2020)
LONG-TERM GROWTH RATE

Long-term economic growth steadily accelerated without any major reversal;


Acceleration not only in aggregate GDP but also more in per capita GDP;
Both unique
Rate of growth has become more stable due to: stable growth in all major sectors and a shift to
service sector with stable growth rate; during 1970s and 1980s, volatile;
More diversified – fastest acceleration in service sector followed by industry, and agriculture;
Long run growth has been driven by large consumption expenditure, and rising investment and
exports;
Productivity gains –both labor and total factor – small though.
Resilient in shock – domestic and external – due to spatial diversified economy, production
structure, diversifying trade basket, trade partners .
THANK YOU

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