As the U.S.
|UN Photo/WFP/Amjad Jamal|
A World Bank report released on July 30 finds that poverty in Pakistan fell by an impressive 17.3 percentage points between 2001 and 2008 (from 34.5 percent in 2001-02 to 17.2 percent in 2007-08). Three out of Pakistan’s four major provinces – Khyber Pakhtunkhwa (formerly NWFP), Punjab, and Sindh – saw significant declines in poverty during this period. The largest fall in poverty was in Khyber Pakhtunkhwa (KP). According to the Bank report “high level of remittances, both foreign and domestic, seem to have facilitated” the decline in poverty in KP.
Pakistan saw migrant remittances reach a record $ 8.9 billion in fiscal year 2010, an increase of 14 percent compared to the 2009 fiscal year despite the global economic crisis (Pakistan’s fiscal year runs from July to June). The World Bank report says “Continued strong growth in worker’s remittances in the past few years has also contributed to improvements in the external current account balance” and “have facilitated improvement in the country’s external position”.
|Image courtesy of Caitfoto through a Creative Commons license|
|Image courtesy of Caitfoto through a Creative Commons license|
Following the very successful earlier engagements of a Khmer palm reader and a celebrity turtle-shell fortune teller, the Thailand economic team has recently hired the forecasting star of the moment to divine the future of the economy. I am not talking about Professor Nouriel “Dr. Doom” Roubini, but Octopus Paul, who had to escape Germany in a hurry to avoid becoming “pulpo a la Gallega”. For a hefty fee of a five shrimps, the wise cephalopod spent a few hours in our offices sharing his prognosis for the Thai economy.
The World Bank released its latest Quarterly Update on China’s economy on Friday (for disclosure's sake: I’m the lead author). At the press launch, there were a lot of questions about the recent wage hikes in several foreign-owned manufacturing companies and the possible concerns these have triggered among many about possible loss of competitiveness and/or a wage-inflation spiral.
Yesterday I attended a seminar organized by the Growth Commission on “Ingredients for Successful Growth Strategies – Equity, Globalization and Leadership” chaired by Otaviano Canuto. As a part of the opening remarks Nobel laureate Michael Spence made it clear that inclusiveness is an integral part of any growth strategy and a necessity for achieving high levels of growth. In (on average) middle income countries where income inequalities are pronounced one finds two economies operating simultaneously: the upper class resembles OECD economies characterized by low levels of growth, while the poorer majority live in a low-income economy with little resources to grow. As a result, the economy as a whole grows at a suboptimal level until these two groups can be remerged and the middle-class is re-established.
The world South Asia will face after this crisis is not going to be the same as in the past. The trend that is accelerating after the financial crisis is that of the “new normal”: the shift in traditional engines of growth from industrial countries to emerging markets.
The crisis is accelerating this fundamental change in economic order in which developed countries have to save more and spend less, while emerging markets, such as China, India, Indonesia, Brazil, Russia, and South Africa begin to play much bigger roles in driving the global recovery. According to our estimates, by 2020, in just ten years---Asia may see its share of world GDP (in nominal dollars) climb to over one-third, replacing North America and the European Union as the biggest region. Underlying this is an expected sharp rise in shares of China and India, and indeed, that of all emerging markets may climb to nearly one-half of global output.
The food, fuel, and financial crises during the last three years sent shockwaves throughout the world and its effects rippled across South Asia. It impacted growth, causing a reduction of growth by nearly 3% from the peak of 8.9% in 2007 to 6.3% in 2009, led to job losses, declines in stock market value, decreases in tourism, and increasing pressures on already weak fiscal, balance of payments, reserves and exchange rates.
I was based in New Delhi during the crisis, and the effects were palpable. For a moment, it looked as if confidence was ebbing---the construction cranes in Gurgaon (the fastest-growing township around Delhi) became silent, a young scholar at Delhi University ran a survey of what graduates might do as job markets became difficult, airlines ran half-empty and racked-up massive losses, jobs were lost heavily in diamond-cutting in Gujarat and IT firms stopped hiring in Bangalore, and people paused to consider the implications of such a dramatic change from the accelerating and heady growth of the previous years. But despite the circumstances, and thanks to strong and prompt government actions, confidence has swiftly returned, the region has proven to be quite resilient and a noticeable resurgence has taken hold.
Even though migration brings about large overall gains globally, whether or not it has a positive impact on growth in a given country has caused more controversy in the empirical literature. The answer depends on the country specific circumstances, and the type of the study. Often the analysis is limited to one specific aspect of migration ignoring the other, possibly more influential indirect channels through which migration impacts growth dynamics. A holistic context specific analysis is needed to inform the policy choices that set up the most favorable conditions ensuring that migration dynamics contribute to an inclusive growth process.
One of the most influential current frameworks for context-specific growth analysis has been the Growth Diagnostics by Hausmann, Rodrik and Velasco. This framework has been further adjusted for inclusive growth diagnostics by Sida and the World Bank. The main difference between traditional and poverty reducing growth diagnostics is that the inclusive analysis takes the individual rather than the firm or the economy at large as the analytical starting point, and argues that the way for sustainable and inclusive growth goes through productive employment. Finding ways to enhance individuals’ ability to participate in, contribute to, and benefit from growth through productive self- or wage employment becomes the focus of the analysis.
A colleague from the Asian Development Bank visited the other day to talk about a study he is doing on Asia’s middle class. Yet this is not an area we have focused on in the World Bank’s East Asia region – perhaps at our cost. I quickly googled the topic and discovered a rapidly growing literature, including a paper each by Martin Ravallion and Nancy Birdsall