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A blog to promote dialog on development in South Asia

About us

About us

This blog is maintained by the South Asia Region of the World Bank Group. Its goal is to exchange ideas on how to end poverty in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.

International Economics and Trade

Does South Asia Run the Risk of Rising Inflation?

Submitted by Eliana Cardoso on Mon, 11/09/2009 - 11:30

I am old enough to remember the days when Latin America was the land of inflation. Hyperinflation in Bolivia, Brazil and Argentina made the news in the 1980s and early 1990s. At that time, Asia was seen as immune to the Latin disease. Since then, much water has gone under the bridge. Inflation came under control in the majority of Latin American countries. Today the median inflation rate in South Asia is more than twice the size of the median inflation rate in Latin America and the Caribbean. (See chart below)

Should South Asia’s policymakers look at this information and wonder whether they are doing something wrong?

In general, the recipe for hyperinflation is the monetization of budget deficits in countries afflicted by political instability or conflict. Even if the threat of mega inflation is far removed from the South Asia scenarios, the combination of big budget deficits and loose monetary policy seems to be present in some countries of the region.

Incentives and Values in Conflict-Prone Countries

Submitted by Eliana Cardoso on Tue, 11/03/2009 - 15:09

One of the most extraordinary examples of the use of economic principles comes from the beginning of the 19th century, when England used to send a huge number of prisoners to Australia. The government originally paid the ship captain a pre-determined amount for each prisoner that boarded the ship, but half of them would die during the journey. In 1862, Edwin Chadwik, knowing that people respond to incentives, told the U.K. government to pay captains according to the number of prisoners that actually disembarked in Australia. With this adjustment, the survival rate increased from 50% to 98.5%.

This example illustrates how incentives can do wonders in some circumstances. Yet, human actions are not always guided by the same calculations made by a profit maximizing ship captain. Behavioral economists have emphasized that we respond to a deep ingrained sense of fairness. Culture and values are crucial in understanding human behavior and promoting healthy and stable societies.

How Should We Best Accelerate Growth and Job Creation in South Asia?

Submitted by Ejaz Ghani on Fri, 10/30/2009 - 10:25

“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.

South Asia Advances on Visual Tool Comparing Development over Time

Submitted by Joe Qian on Wed, 10/28/2009 - 16:29

The World Bank released its Data Visualizer tool last week, which compares 209 countries through the lens of 49 development indicators utilizing data ranging from 1960 to 2007. Using three dimensional bubbles whose sizes are proportional to populations and are color coded to the different regions (purple represents South Asia), they move horizontally or vertically based on their achievements on a number of indicators that range from GDP per capita to the percentage of children that are inoculated against measles.

Users will find similarities with the groundbreaking Gapminder World tool that Swedish Health Professor Hans Rosling first presented to the TED Conference in 2006. He concluded that the world is converging and that old notions of contrasting developed country (generally small families and long lives) with developing country (large families and short lives) to be grossly out of date.

Don’t Throw the Baby with the Bathwater!

Submitted by Zahid Hussain on Thu, 10/15/2009 - 12:14

Paul Krugman’s September 6 article in the New York Times (How Did Economists Get It So Wrong?) is a humbling warning to the economics profession against the pitfalls of intellectual complacence. It challenges the profession to re-examine the validity of its existing knowledge particularly in relation to globalization and the workings of local and global financial markets.

Granted that economists have to face up to the unpalatable fact that our theoretical apparatus falls far short both as descriptions of how economies function and as prescriptions of how they can be made to function better. The crisis has exposed the limits of economic knowledge. According to Krugman: “The vision that emerge as the profession rethinks its foundations may not be all that clear; it certainly won’t be neat; but one can hope that it will have the virtue of being at least partly right.”

In this process of reappraising existing economic knowledge, there is a real risk of going overboard and wrong the right knowledge. Using the global economic crisis as an excuse, there are emerging tendencies to reject tested economic wisdoms in areas such as the role of foreign capital and trade policy in economic development.

One school of thought that is attempting to rise from the ashes is known as (old) Structural Economics.

Full Speed Ahead: Internet Traffic Growth Unaffected by Financial Crisis

Submitted by Joe Qian on Thu, 09/17/2009 - 13:32

Reading about the financial crisis and the effects that have rippled around the world, it’s always heartening to find something positive in the midst of piles of red ink and pessimistic expectations.

Although the majority of industries and economies around the world have suffered due to the downturn, Internet traffic growth accelerated at an increasing rate in 2009 compared to 2008 with no discernible slowdown due to the crisis. According to data released by Telegeography, every single region around the globe registered growth in internet traffic, or flow of data. South Asia has registered over a 100% increase, higher than the 79% posted worldwide, although it must be noted that South Asia had a lower baseline capacity.

Doing Business Report 2010: South Asia

Submitted by Joe Qian on Mon, 09/14/2009 - 17:01

The World Bank released its annual Doing Business report (pdf) last week which tracks regulatory reforms for conducting business and ranks countries based on their ease of doing business.

Countries are evaluated and ranked by indicators such as starting a business, employing workers, getting credit, paying taxes, etc.

In South Asia, seven out of eight (75%) of the countries instituted reforms that were conducive to business, higher than any previous year of the study.

Pakistan was the highest ranked country in the region at number 85 while Afghanistan and Bangladesh were the most dynamic reformers with three reforms each. Afghanistan’s rank in the study also increased the most in the region, climbing eight spots.

Watch Your Wallets, Protectionism is Back!

Submitted by Zahid Hussain on Wed, 08/12/2009 - 13:32

Protectionism is BackProtectionism is on the rise all over the world, thanks or should we say “no thanks” to the global economic crisis.  Last November, G-20 leaders pledged to fight protectionism. Yet, according to the World Trade Organization (WTO), 18 out of these 20 economies have since taken measures to restrict trade. With the global economy struggling to recover, political pressures demanding protection from import competition to sustain domestic employment are intensifying. It is likely to prove right the old adage that the only thing we learn from history is that we never learn from history.  One lesson from the experience of the 1930s that is currently most relevant is that raising trade barriers deepens and prolongs recession.

The Resilience of Bangladesh's Economy May Again be Tested This Year

Submitted by Zahid Hussain on Wed, 07/22/2009 - 10:25

The Bangladesh economy entered FY10 in a position of strength, notwithstanding some pretty tough global circumstances. Good recovery in agriculture, a sustained growth in exports and remittances, and a steady growth in services helped achieve an estimated overall growth of 5.9 percent in FY09, compared with 6.2 percent in FY08. A decline in international commodity prices driven by the global recession and an improvement in domestic food supplies brought inflation down from 10 percent in FY08 to an estimated 7 percent in FY09. Rice prices have remained stable too at nearly 40 percent below the peak reached in April, 2008. The economy has shown reasonable stability in terms of most other macroeconomic indicators. The external current account has been in a large surplus; the exchange rate has been stable; foreign exchange reserves have reached record high levels of nearly $7.5 billion; fiscal balances have been contained; and private credit growth has remained decent.

This is all good news but it doesn’t mean Bangladesh goes totally unscathed by those tough global circumstances.

Remittances in Bangladesh: Determinants and 2010 Outlook

Submitted by Zahid Hussain on Wed, 07/01/2009 - 10:47

Co-authored with FARRIA NAEEM

Remittances have emerged as a key driver of economic growth and poverty reduction in Bangladesh, increasing at an average annual rate of 19 percent in the last 30 years (1979-2008).

Revenues from remittances now exceed various types of foreign exchange inflows, particularly official development assistance and net earnings from exports. The bulk of the remittances are sent by Bangladeshi migrant workers rather than members of the Bangladeshi Diaspora. Currently, 64 percent of annual remittance inflows originate from Middle Eastern nations.

Robust remittance inflows in recent years (annual average growth of 27 percent in FY06-FY08) have been instrumental in maintaining the current account surplus despite widening a trade deficit. This in turn has enabled Bangladesh to maintain a growing level of foreign exchange reserves.