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South Asia

The Dutch Disease has not Infected Bangladesh, not yet any way

Zahid Hussain's picture

The Netherlands’ discovery of large natural gas deposits in the North Sea in the 1960s had serious repercussions on important segments of its economy, as the Dutch guilder became stronger, making Dutch non-oil exports less competitive. This has come to be known as "Dutch disease" or “resource curse.” Although generally associated with a natural resource discovery, it can arise from any large inflow of foreign currency--foreign assistance, foreign direct investment and remittances, among others. A surge in remittances can be expected to result in appreciation of the currency in the receiving country with all its attendant consequences of crowding out exports, crowding in imports, and induce movement of resources into the production of non-traded goods.

Bangladesh has experienced a remittance boom since FY01—with annual flows rising from $1.9 billion to $9.7 billion in FY09—growing at a compounded annual rate of 22.6 percent for eight years and still counting! As a result, remittance has now reached nearly 11 percent of GDP and is now the single largest source of foreign exchange earnings.

India’s Turn

Eliana Cardoso's picture

An Ideal Husband, the play by Oscar Wilde, tells a story of unrealistic expectations. Lady Chiltern, a woman of strict principles, idolizes her husband, a rising star in politics. Their life is filled with nectar and ambrosia, until the appearance of Mrs. Cheveley. She comes with a letter – one that proves Sir Robert Chiltern’s fortunes were made on the back of privileged information during the construction of the Suez Canal. In exchange for this letter, she seeks support for the construction of a new canal in Argentina.

Want to Share Your Views About Climate Change and Win $2,500?

Joe Qian's picture

If you would like to showcase and share your views on Climate Change in Asia, the Asian Development Bank (ADB) is hosting a video contest judged by a number of award winning directors and critics around the globe. 

Winners of "My View: The Asia-Pacific Climate Change Video Contest." will be eligible for $10,000 in prizes in three contest categories:

What are Key Areas for Regional Cooperation in South Asia?

Ejaz Ghani's picture

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.

More and Better Jobs

Eliana Cardoso's picture

Forget the Homo Sapiens and the Homo Economicus. The guy who traces our destiny is the Homo Ludens, the man who plays. Johan Huizinga, a professor of history and linguistics, in his 1938 book, says that art and culture originate from our propensity to dance and have fun. But to enjoy life, play and build a peaceful world, you need a productive job that removes you from the daily struggle of making ends meet.

South Asia is unique in the multiplicity of its challenges and opportunities to generate productive employment. Start counting: many workers are stuck in low productivity agriculture and informal employment; there is low female labor force participation; the skill base is low; the countries in the region struggle with pervasive vulnerability and uncertainty, large economic and social disparities, and persistent conflict and violence.

Yet, there is no work that looks at all these factors in an integrated manner for the region. This is the reason why the World Bank’s first South Asia Region flagship report will focus on More and Better Jobs. This blog will keep readers informed on the progress of the report during next year.

How Can Sri Lanka take Advantage of its Demographic Dividend?

Susrutha Goonasekera's picture

Much has been said about Sri Lanka’s uniqueness among developing countries; no one can deny that the oldest population pyramid outside of wealthy countries.

The demographic transition implies an aging of the population, but before old-age dependency becomes an issue, there is an intermediate period of a demographic dividend when a larger proportion of the population will be at the prime working age. The success to managing the long-term age-dependency effects of the demographic transition is to use this intermediate period of demographic dividend to conserve resources for future use and to plan for a more cost-effective strategy to deal with the future age burden. This will allow older people to live a happy productive life.

The challenge is to develop a strategic approach that takes advantage of the demographic dividend period both in terms of making strategic decisions for future cost-effectiveness and save resources for future use.

Is Bangladesh Getting Public Investment Right?

Zahid Hussain's picture

Economic growth in Bangladesh began to decline since FY06 at roughly the same time that its public investment rate started falling. The decline in growth also appears to coincide with slowdown in growth of infrastructure capital in the hard infrastructure sectors; particularly energy, transport and communication. It is therefore tempting to think that the two may be correlated.

Indeed, economic theory suggests that the availability of economic and social infrastructures makes it conducive for the private sector to invest; higher public capital increases productivity and reduces production costs; and by increasing demand public investment gives rise to profit and sales expectations which in turn induce private investments. These are known as the crowding-in effects of public investment.

Crowding in, however, cannot be taken for granted. Public investment can also crowd out private investment if it is made in activities that compete with the private sector. In addition, the growth impact of increased public investment depends on how it is financed. If it is financed through higher public debt, which implies higher future taxation levels, private investments may get crowded out.

How Can South Asia Overcome its Infrastructure Deficit?

Ejaz Ghani's picture

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.

The Poor and the Middle Class

Eliana Cardoso's picture

Start counting the poor in India and you are bound to get into controversy. In “A Comparative Perspective on Poverty Reduction in Brazil, China and India,” Martin Ravallion (October 2009) calculates that 42% of the population in India in 2005 lived in households with income per person below US$1.25 a day (converted using purchasing power parity exchange rates for consumption in 2005). But he finds only 20% of the population under the US$1.25 poverty line when using a different method as a sensitivity test. The difference is huge. One number is twice the other and corresponds to two hundred million people (more than the whole population of Brazil!).

Ravallion repeats the exercise and finds that in Brazil, in 2005, the population who lived in households with income per person below US$1.25 a day (converted using purchasing power parity exchange rates for consumption in 2005) is 8%. When using the alternative sensitivity test method, it is 10%. Compared to India, the difference is small (2% of the population) between the two measures.

I suspect that instead of trying to calculate the number of people with less than US$ 1.25 a day, policies for poverty reduction should focus on the bottom quintile of the population: the 20% poorest group in the country.

One of my reasons is that inequality matters. Think of poverty as a relationship.

Integrating the Two South Asias

Ejaz Ghani's picture

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.

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