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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.

How to Make a Billion Dollars Work

Parmesh Shah's picture

Large-scale public services and expenditure, especially those specifically designed for the poor, are vulnerable to leakages. Whether it is access to quality health care or education, clean water or entitlements under a development scheme; the poor face many barriers in accessing the public services and programs that are intended for them.

Social accountability interventions aggregate citizen voice and strengthen their capacity to directly demand greater accountability and responsiveness from public officials and service providers. Such interventions include the use of tools such as community scorecards, citizen report cards and social audits.

In 2007, three social accountability interventions were introduced in India in public programs on a pilot basis, representing budgets that run into the billions of dollars. With social accountability as the common denominator, three different states with three different service delivery contexts have been able to precipitate a series of impacts in just one year.

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.

Bang for the Buck, Changing Attitudes Toward People with Disabilities

Susan Hirshberg's picture

"Just like the Other Kids" could reach 300,000 first and second graders this year.

We like to think that our value added is our strong intellect and analytical skills combined with the ability to provide additional resources to tackle development issues. But for South Asia’s efforts in disability, it has sometimes been the smallest amounts of money and the least ‘Bank-like’ activities that have been creating the greatest awareness on the subject. I wanted to highlight some of the very exciting initiatives that we have been working on marking the International Day of Persons with Disabilities today. Three such activities have been the development of a children’s book on inclusion in Pakistan, coverage by an Indian newspaper of a one-page analysis of Bollywood’s depiction of disability in films in the report Disability in India: from Commitment to Actions, and a Small Grants Award Ceremony in Sri Lanka.

“Just like the Other Kids” is a book by young people between the ages of 12 to 18 with and without disabilities financed for $22,000 by the South Asia Youth Innovation Fund and the Pakistan Small Grants Program. Its intent is to introduce first and second graders to characters with disabilities in a friendly, inclusive way. Three out of five of the characters have a disability, but all the characters have strong abilities (and some weaknesses).

Mister 100%

Mark Ellery's picture

As a policy target, there is little doubt that it is desirable that government should ensure services for all. Breaking this down to a simple target of 100% access to a service, some local governments are showing that ensuring services for all is achievable, when they deploy their social and legal authority to leverage existing service providers to ensure a basic service for all and then increase the quality of the service (i.e. 100% by 100%).

In the remote North West Corner of Bangladesh in the poor and monga (hunger) prone District of Kurrigram there is a remote yet remarkable upazila called Rajarhat. Rajarhat was the first upazila (subdistrict) in the country to be declared Open Defecation Free (i.e. 100% sanitation) in 2004. In the light of the Government’s target of education for all, the Rajarhat upazila (subdistrict) is now seeking to be the first upazila in the country to achieve universal enrollment (i.e. 100% of children turning 6 are enrolled in school).

To understand this phenomena we visited one of the Union Parishads (UP) (Council) called Omar Majid and spent some time with the UP Chairman Khanbaker Abdul Hakim. This Union Parishad claims to have achieved:

100% sanitation (achieved in 2004) sustained through ward task forces, hygiene education and public latrines with MGSK and WaterAid.
100% registration at birth (achieved in 2007) and subsequently introduced as a pre-requisite for the enrollment of children in school.

Life and Death in South Asia

Eliana Cardoso's picture

In the film, Venus, an old and frail Peter O’Toole discovers the Greek goddess in the guise of his best friend’s niece. The ironic and good humored story explores the theme of the games played in a mutual seduction between the older man with experience, money and a nostalgic yearning for carnal desire and the young woman who soon finds out the power she wields and negotiates three kisses in return for a pair of earrings. In the final scene, wearing only one of his boots on a cold beach, O’Toole feels the caress of the sea’s salty foam with the sole of his foot and smiles. His face expresses the happiness of someone who knows the joys of being alive.

It is impossible to weigh up Peter O’Toole’s smile, measuring the degree of his happiness or comparing it to what you would feel if walking barefoot in the sand. But, the idea that his feelings can be measured as a metric has become fashionable, ever since the King of Bhutan decided that GDP fails to portray the well-being of his subjects and summoned a team to create the Gross National Happiness index.

How Will Changes in Globalization Impact South Asia?

Ejaz Ghani's picture

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.

World Bank Teams up with Google to Share Development Information

Joe Qian's picture

What’s the Gross Domestic Product (GDP) of India? If you type the inquiry into Google now, a graph will immediately display the data ranging from 1960 to 2008 and a figure showing that it is currently $1.22 trillion. If you click on the graph, it will immediately expand and allow you to compare historical figures as well as with that of other countries. I noticed, for instance, that India had a GDP of $36.6 billion in 1960; a 33 fold increase over the last 48 years!

The popular search engine has joined forces with the World Bank in sharing development data through the Data Finder, featuring 17 development indicators based on information provided by the World Bank to make the easy to understand information accessible to a broader audience. The public data tool is exceptionally easy to use and is excellent for comparative research or exploration of data over time. The indicators are as diverse as carbon dioxide emissions, fertility rates, GDP growth, and number of internet users.

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