Ejaz Ghani's blog

What can be done to reduce conflict in poor regions? A speech given by Indian Prime Minister, Dr Manmohan Singh on Internal Security and Law and Order in 2005, sums up the story of conflict and development: “…development, or rather the lack of it, often has a critical bearing, as do exploitation and iniquitous socio-political circumstances. Inadequate employment opportunities, lack of access to resources, under developed agriculture, artificially depressed wages, geographical isolation, lack of effective land reforms may all impinge significantly on the growth of extremism...Whatever be the cause, it’s difficult to deny that extremism has huge societal costs. Investments are unlikely to fructify, employment is not likely to grow and educational facilities may be impaired. Direct costs would include higher costs of infrastructure creation as contractors build "extortions" into their estimates, consumers may be hurt due to erratic supplies and artificial levies. In all, the society at large and people at large suffer. Delivery systems are often the first casualty. Schools do not run, dispensaries do not open and PDS shops remain closed.”

Reducing conflict and violence is a prerequisite to political stability, which, in turn, is the prerequisite for implementing pro growth policies. Even in a best-case scenario, the presence of low-level conflict constrains the policies governments can implement to promote growth. Policy makers in South Asia have tried various policies to reduce conflict.

After Iraq, South Asia is the second most violent place on earth. Conflict has increased in South Asia during the last decade. Where is conflict concentrated? What can be done about it?

Conflict is a very broad term, which is often defined differently in different contexts and data sets. We can, however, consider two broad classes of conflict. The first category includes conflict against the State. Examples of this include civil war or terrorism, which is an extreme manifestation of conflict, and it reflects a certain degree of organization of conflict. It is carried out by a relatively organized group of non-state actors, and directed against the State. Some researchers choose to focus on terrorism as a measure of conflict, because it has implications for the overall stability of the state itself, and therefore its ability to implement any developmental policy. The second category includes people-to-people conflict, rather than directed against the State. Examples of this include localized land conflicts, religious riots, homicides or other crimes. They too have adverse implications for development, but are probably less severe, compared to terrorism.

It is a paradox that India which is among the most densely populated countries in the world, is also among the least urbanized. The figure below compares urbanization rates with income for more than 100 countries. It shows that an increase in urbanization rate is positively associated with real per capita income. This is the iron law of development—i.e., growth is associated with the reallocation of labor and capital away from traditional (rural) sectors to modern (urban) sectors. Spatial transformations that give rise to urbanization accelerate growth because households and firms benefit from scale economies, mobility, and specialization. Increased urbanization contributes to growth, job creation and poverty reduction. This can indeed become a virtuous circle.

As discussed in my last two entries, South Asia's Infrastructure Deficit and Integrating the two South Asias, regional cooperation can be a key instrument in meeting the development needs of South Asia. In this piece, I will discuss specific areas that will bring the most region-wide benefits in my view.

The three priority areas for regional cooperation include telecoms and internet, energy, and transport. A regional telecom network and a high-bandwidth, high-speed internet-based network could help improve education, innovation, and health. A regional network would facilitate better flow of ideas, technology, investments, goods and services. It would facilitate greater interactions between knowledge workers in areas such as high-energy physics, nanotechnology, and medical research. There are untapped positive synergies at the regional level that would come from information sharing and competition in ideas among universities, non-university research and teaching entities, libraries, hospitals, and other knowledge institutions.

Last week, I discussed the two very different South Asias and the need for regional cooperation to bring the lagging regions up to the standards of thriving regions. However, increased market integration by itself will not be sufficient to accelerate growth and benefit the lagging regions. South Asia suffers from a massive infrastructure deficit. Infrastructure is like second-nature geography, which can reduce the time and monetary costs to reach markets and thus overcome the limitations of physical geography.

Improved infrastructure that enhances connectivity and contributes to market integration is the best solution to promoting growth as well addressing rising inequality between regions. The Ganga Bridge in Bihar in India is a good example of second-nature geography. The bridge has reduced the time and monetary costs of farmers in the rural areas in north Bihar to reach markets in Patna, the largest city in Bihar. The Jamuna Bridge in Bangladesh is another good example of spatially connective infrastructure. The bridge has opened market access for producers in the lagging Northwest areas around the Rajshahi division. Better market access has helped farmers diversify into high value crops and reduced input prices.

South Asia suffers from three infrastructure deficits. First, there is a service deficit, as the region’s infrastructure has not been able to keep pace with a growing economy and population.

Regional Cooperation can be the key instrument to promote increased market integration in South Asia through greater flow of goods, services, capital, and ideas. This is appropriate for a region which is the least integrated region in the world, although many countries share analogous cultures and histories, as well as a passion for cricket and curry.

It is also very timely given the global downturn and the slowdown in global trade. Increased regional trade could more than compensate for the potential loss in global trade. It is estimated that increased intra-regional trade could add two percentage points to South Asia's GDP growth. This could raise South Asia's real GDP growth from 6% to 8% in 2010. Unlike fiscal stimulus, increased market integration and regional trade could add to GDP growth, without increasing public debt. It is the most efficient and cost effective instrument for South Asia to cope with the global downturn.

Globalization has accelerated global growth and global poverty reduction. But it has also raised concerns. The current global crisis may change globalization itself, as both developed and developing countries adjust to global imbalances that contributed to the crisis. Will these changes help or hinder economic recovery and growth in South Asia?

There are three models of globalization. These include (a) trade flows (exchange of goods), (b) capital flows (exchange of money), and (c) macroeconomic management. These three models of globalization may not be the same in the future. Changes in globalization could change the composition of trade flows, capital flows, and economic management, which in turn, could accelerate or restrain growth. So how will changes in these three models of globalization impact economic recovery and growth in South Asia?

South Asia as a region is peculiar. Its trade, capital flows, and economic management differ from other regions in how the region has globalized, although it must be mentioned that there is a lot of diversity within the region.

“South Asia continues to grow rapidly and its largest economy, India, is close to becoming a Tiger.”

Sadiq Ahmed and I were inspired to author Accelerating Growth and Job Creation in South Asia when we were asked by the South Asia Chamber of Commerce, SAARC Business Conclave, FICCI, and a number of policy makers, local research institutes, and CEOs to come up with a strategy on what can be done by South Asian countries to accelerate growth and job creation. So we invited the world’s leading scholars to apply their talents to understanding the economies of South Asia. This gave birth to the book.

It is organized along three themes—an overview of South Asia’s growth opportunities and challenges; sources of growth and policies for the future; and the significance of regional cooperation in promoting growth. The essays combine quantitative data with analytical rigor to provide innovative suggestions in terms of policies and institutions that can propel South Asia towards higher growth, while promoting inclusiveness.