South Asian Economic Development
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South Asian Economic Development
South Asia’s developing nations have been enjoying moderate to high growth over the past decade before the global recession began. This new edition provides an upto-date guide to the growing markets in South Asia. It offers an analysis of the changes and consequences of high sustainable growth, investigating what has been achieved in the region during the last ten years from a macroeconomic viewpoint, identifying new challenges and clearly defining what has driven the boom. The first part of the textbook presents an analysis of how South Asia is rated against Southeast and East Asia in recent decades in economic and social terms. The second part focuses on South Asia’s economic development over the 1990s and mid-2000s, and the third and final part identifies those major governance issues which were responsible for South Asia’s underperformance both socially and economically. It is widely recognised that globalisation enhanced global trade, and that trade further increased the region’s prosperity. Embracing the view that economists can no longer regard themselves as technocratic guardians of neutral policy advice, the book advocates for a shift in focus from policy reform per se to the more challenging task of implementing institutional reform that will invigorate the capability of the political leadership to bring about rapid, sustained and poverty-reducing growth in South Asia. The central task would be to re-direct the focus of governments in South Asia in order to ensure that the core functions of the state – stable, non-distortionary policy climate, a secure foundation of law, investment in basic education, health and infrastructure, protection of the vulnerable, and adapting to climate change – are efficiently provided. At the same time, the reform agenda must be sensitive to the goal of ensuring that durable democratic institutions, traditions and values are preserved. This is a fundamental challenge, but one that must be met in order to secure the emergence of a prosperous South Asia in the early part of the twenty-first century. This textbook will be useful for students and researchers in Development Economics, Business Economics, Development Studies and Asian Studies. Moazzem Hossain is Senior Lecturer in the Department of International Business and Asian Studies at Griffith University, Australia. Rajat Kathuria is Professor at the International Management Institute, New Delhi, India. Iyanatul Islam is Professor in the Department of International Business and Asian Studies at Griffith University, Australia.
South Asian Economic Development 2nd edition
Moazzem Hossain, Rajat Kathuria and Iyanatul Islam
First published 1999 Second edition published 2010 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 100016 This edition published in the Taylor & Francis e-Library, 2010. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. Routledge is an imprint of the Taylor & Francis Group, an informa business © 2010 Moazzem Hossain, Rajat Kathuria and Iyanatul Islam All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Hossain, Moazzem South Asian economic development / Moazzem Hossain, Rajat Kathuria, and Iyanatul Islam. p. cm. Includes bibliographical references and index. 1. South Asia—Economic conditions. 2. Economic development. I. Kathuria, Rajat. II. Islam, Iyanatul, 1953- III. Title. HC430.6.H67 1999 338.954—dc22 2009024317 ISBN 0-203-86334-8 Master e-book ISBN
ISBN10: 0–415–45472–7 (hbk) ISBN10: 0–415–45473–5 (pbk) ISBN10: 0–203–86334–8 (ebk) ISBN13: 978–0–415–45472–8 (hbk) ISBN13: 978–0–415–45473–5 (pbk) ISBN13: 978–0–203–86334–3 (ebk)
Contents
List of figures List of maps List of tables Preface Acknowledgements
vii viii ix xiii xvi
PART I
Introduction 1 South Asian economic development: post-independence era
1 3
2 Benchmarking South Asian economic performance
22
3 Benchmarking South Asia’s human development in the era of ICT
31
4 Demographic dynamics of South Asia
38
PART II
South Asian economic development
45
5 Human resources and economic performance
47
6 Labour market institutions and economic performance
62
7 The Millennium Development Goals and the achievements to 2005
75
8 Macroeconomic management in the era of the information revolution
83
9 Economic reforms in South Asia
91
10 Trade and economic integration
109
11 Agriculture and rural development
137
12 Climate change, growth and poverty
152
13 Information technology (IT) issues
171
vi
Contents
PART III
South Asia in the twenty-first century
187
14 India’s growth on the back of the information revolution
189
15 South Asia in the twenty-first century: Seeking ‘good governance’ in the era of the information revolution
210
Appendix 1.1 Books and book-length monographs on South Asia: a random sample covering the 1960–2009 period
223
Appendix 14.1 Data definitions and sources
226
Appendix 14.2 Descriptive statistics
228
Appendix 14.3 The econometric model and detailed results
229
Appendix 14.4 State boundaries and mobile licences
233
Appendix 14.5 Operations by state
235
Bibliography Index
236 264
List of figures
10.1 10.2 10.3 10.4 10.5 10.6 11.1 12.1 12.2 14.1 14.2 14.3 14.4 14.5 14.6 14.7
Global trade and South Asia (imports plus exports, US$ million) Relative shares of South Asian trade (%) Bangladesh’s major export products (US$ million) India’s major export products (Rs million) Pakistan’s major export products (PRs million) Sri Lanka’s major export products (SRs million) Proposed three-tier local government institutions under the Ordinance 2008 Departures in temperatures in °C for the past 140 years (globally) and the past 1,000 years (northern hemisphere) Ecological footprint of selected developed and developing countries (hectares per capita) Mobile density and per capita income across Indian states Growth of fixed and mobile subscriptions Number of new subscribers Mobile penetration in India and comparator countries Airtime rate per minute in selected countries Measures of mobile usage across states March 2008 Urban vs. rural teledensity
118 119 121 124 126 128 149 168 169 192 195 198 199 200 203 205
List of maps
10.1 10.2 12.1
The three presidencies of British India: Bombay, Bengal and Madras China’s and South Asia’s coastal belt The Ganges, Brahmaputra and Meghna river basins
133 135 166
List of tables
1.1 1.2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 3.1 3.2 3.3 3.4 3.5 3.6 3.7 4.1 4.2 4.3 4.4 4.5 4.6 4.7
Initial conditions: per capita GDP and human development indicators, 1960–95, South Asia vs. Korea Per capita GDP of South Asian economies and Korea as a percentage of US GDP (PPP: US$) 1950–95 Sectoral growth rates 1991–94 and 2004–05 (%) Sectoral share of GDP 1990–2005 (%) Domestic savings and investment ratios (% of GDP) External trade annual change (%) Current account 1990–2005 (balance of payment in million US$) Integration with the global economy External indebtedness 1990–2005 Outstanding debt 2005 Major macroeconomic indicators 1990–2006 Major social indicators 1995–2006 South and Southeast Asia’s Human Development Record 1990s–2000s Changing level of poverty Income distribution and PPP estimates of GNP Eradication of extreme poverty Achieving universal primary education and promoting gender equality Reducing child mortality and improving maternal health Demographic conditions Population estimates and land use Distribution of population by age and dependence ratio 1996–2004 Labour force participation rates, by sector 1980–2005 Women in development in selected Asian countries 1990–2005 Female labour force 1990–2005 Contraceptive use rates 1995–2005
5 5 23 24 25 25 26 27 28 28 29 32 33 34 35 36 36 37 38 39 40 40 41 42 42
x
Tables 5.1
5.2 6.1 6.2 6.3 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 10.1 10.2 10.3 10.4
Relative size of social expenditure in South Asia (as at 1995) vis-à-vis the 20:20 initiative of the UNDP (% of total central government expenditure) Private vs. social rates of return to education in South Asia (%) Distortion index for South Asia in factor markets in the 1970s Ratification of basic ILO conventions (as at 1994) Behaviour of real wages in South Asia (%) Demographic conditions Population estimates and land use Distribution of population by age and dependence ratio 1996–2005 Labour force participation rates, by sector 1980–2004 Female labour force 1990–2005 Fertility and contraceptive use rates 2000–05 Eradication of extreme poverty Achieving universal primary education and promoting gender equality Reducing child mortality and improving maternal health Trends in inflation rates, GDP growth and monetary expansion in selected countries Exchange rates 1988–2008 (in national currencies per US$) Trends in depreciation in nominal exchange rates in relation to US$ in South Asia Trends in external trade and trade balance (annual change, % of GDP) Ratios of export to imports (%) Growth of external debt 1987–2006 (US$ billion) Trends in the debt–service ratio 1985–2005 (% of exports) Official Development Assistance (ODA) received (net disbursement) Fiscal indicators 1998–2005 (% of GDP) Tariff reform Nominal tariff barriers in primary and manufactured products 2005 Quantitative restriction coverage (% of total production) Privatization performance 1994 Pakistan’s privatization record 1994 MVA growth rates and shares by country 1970–94 (%) FDI flows to South Asia 1990–2005 (US$ million) Key changes in India’s regulatory framework for FDI 1991–2005 Trends in South and East Asia’s trade integration (%) Recent trends in South Asia’s trade integration 2000–05 (%) Agricultural producer support, selected OECD nations (%) Private unrequited net transfers 1981–2005
56 57 67 68 70 75 76 77 78 79 80 80 81 82 84 85 85 86 87 87 88 88 89 93 93 94 95 96 96 106 107 110 110 113 115
Tables 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 12.1 12.2 13.1
Growth rates of merchandise trade of South and East Asian economies 1971–80 to 2000–05 (% per annum) Merchandise exports from South and East Asian economies 1990–2005 Regional trade matrix (imports plus exports) of South Asia (US$ million) Regional trade balance in South Asia (US$ million) South Asia’s trade balance (exports minus imports) with other regions (US$ million) Bangladesh’s balance of trade with major trading partners (US$ million) Bangladesh’s exports to major destinations (US$ million) Structure of merchandise and services trade, Bangladesh 1990–2005 (% of total) India’s balance of trade with major trading partners (US$ million) India’s exports to major destinations (US$ million) Structure of merchandise and services trade, India 1990–2005 (% of total) Pakistan’s balance of trade with major trading partners (US$ million) Pakistan’s exports to major destinations (US$ million) Structure of merchandise and services trade, Pakistan 1990–2005 (% of total) Sri Lanka’s balance of trade with major trading partners (US$ million) Sri Lanka’s exports to major destinations (US$ million) Structure of merchandise and services trade, Sri Lanka 1990–2005 (% of total) Merchandise exports and share of world exports 1990–2005 Japanese foreign direct investment in Asia 1951–88 Cereals and rice production in 1985–94 (five-year averages) (’000 tonne) Yield of cereal 1990/92–2003/05 (kg/ha) Agriculture value-added per worker in 2000 (US$) Average value of net imports of wheat and rice per year (US$ million) Export values of cash crops and allied products 1981–94 Adoption of seed-fertilizer-irrigation technology 1992–2003 Supply–demand gap for rice and wheat in India 2005–2026 (million metric tonnes) Current administrative units in Bangladesh Basic facts about Bangladesh Climate scenarios for Bangladesh in 2030 and 2050 The IT industry’s qualitative view on offshore outsourcing
xi 115 116 116 117 117 120 121 122 122 123 124 125 126 127 127 128 129 134 134 139 140 140 141 143 144 145 148 167 169 172
xii
Tables 13.2 13.3 14.1 14.2 14.3 14.4 14.5 14.6 14.7 14.8 A1.1
A14.2.1 A14.3.1 A14.4.1 A14.5.1
Selected IT industry performance corresponding to macroeconomic performance in India and Ireland in early 2003 India and China: a comparison on selected criteria All-India fixed, mobile, internet and broadband penetration rates Internet and broadband targets in millions of subscribers Mobile market shares March 2008 (%) Mobile coverage in selected countries 2007 (% of population covered by mobile network) Indicators for individual states Coefficient of variation across states A growth of mobile telephony in each state Universal service obligation funds (US$ million) Books and book-length monographs on South Asia: a random sample covering the 1960–2009 period Descriptive statistics Results of econometric models State boundaries and mobile licences Operators by state
173 177 196 196 199 200 201 202 204 206 223 228 231 233 235
Preface
The developing South Asian nations had been enjoying moderate to high growth over the decade immediately before the great recession hit almost all the economies of the globe in 2008. Living conditions improved in all nations of the region before 2008. What made this prosperity possible? It is now widely recognized that globalization enhanced global trade and more and more trade enabled this region to further prosper. For example, commodity trade, trade with services and expatriate workers employed in the Middle East and Southeast Asia (remittances) made a major breakthrough on the growth front. While South Asia has been making strong progress, new challenges have also emerged in recent years. The most important among them is climate change, which has a devastating impact on the economic and social aspects of the region. The present global economic slowdown will not help either. Like globalization, effects of climate change and global food, fuel and financial crises have no bounds. Thus, while the present version of South Asian Economic Development updates the economic and trade data between 1996 and 2006, the new issues of climate change, information economy and local governance are addressed as well. As in the first edition, the study focuses on the four populous economies of South Asia: Bangladesh, India, Pakistan and Sri Lanka. One may recall that in the 1950s and early 1960s, countries such as Sri Lanka and India were predicted by prominent economists to have a bright future. It causes considerable surprise in retrospect to note that, in 1950, Sri Lanka was considerably richer than some East Asian economies, such as Korea (in terms of per capita gross domestic product (GDP) as measured in purchasing power parity (PPP) dollars). Pakistan also had a higher per capita income than Korea. Indian industrialization started in the mid-nineteenth century. Korean industrialization lagged by at least 50 years. Yet, Korea is now a ‘high-income country’ (a member of the Organization for Economic Cooperation and Development (OECD), the club of the more developed nations). It has been a member of the OECD since 1996. However, Korea suffered from the fallout of the 1997 Asian currency crisis, but recovered sharply (within only three years, by 2000). The South Asian economies, on the other hand, continued to languish as ‘low-income’ economies until the mid-1990s. These economies, however, have been growing moderately after embracing economic reforms in the early 1990s and subsequently the
xiv
Preface
information revolution has been supporting an unprecedented telecommunications (mobile in particular) infrastructure in recent years, which has helped advance growth. It is this optimistic tale of two Asias that prompted the authors to take a renewed look at a group of South Asian economies in the present edition. With the economic reforms taking place from the early 1990s, the question is: Are the outcomes any better? Several studies of the World Bank in the post-reform era articulate that significant changes have taken place in at least the areas of poverty reduction and education in recent years (until 2007). Particularly in the case of Bangladesh and India, the Bank has been painting optimistic pictures. According to the Vice President of the South Asia Region of the World Bank, in 1991, 57 per cent of Bangladesh’s population was living below the poverty line. By 2000 this number came down to 49 per cent. Over the period 2000 to 2005, the poverty rate further declined to 40 per cent with around six million people lifted out of poverty. (www.worldbank.org) As far as the extreme poverty goes, the proportion of households living under a straw roof – a highly sensitive indicator of extreme poverty – fell from 18 per cent of the population in 2000 to 7 per cent in 2005. While this is certainly a phenomenal achievement for Bangladesh, the World Bank recognizes that the achievements of the East Asian and Southeast Asian nations, like China, Thailand and Vietnam, simply cannot be matched. For example, the poverty rate in Vietnam fell from 58 per cent in 1992 to 20 per cent in 2005. In other words, the Bank insists, although the proportion of poor in Vietnam was similar to that in Bangladesh in the early 1990s, it is now around half that in Bangladesh. The main reason Vietnam overtook Bangladesh is that Vietnam’s annual rate of growth was on average 2.5 percentage points higher than Bangladesh’s annual rate of growth during this period. One can make similar parallels between China and India. While India’s rate of growth has been impressive since the early 1990s, it also lagging behind China’s growth by almost 2.5 percentage points annually over the last decade (1995–2005). With such a comparative environment existing in two Asias, Part I of the present edition very closely analyses how South Asia rated against Southeast and East Asia in recent decades in economic and social terms. Part II generally deals with South Asia’s economic development over the 1990s and mid-2000s. Part III identifies the major governance issues which were responsible for South Asia’s social and economic relative underperformance. This study accepts the standard refrain that the policy regime is the primary and proximate influence on growth performance. However, we believe that the ideas and ideology that drive the convictions of political leaders are important in understanding why particular notions about appropriate policies are assimilated and others are rejected. Moreover, once a given policy regime takes hold, the disengagement from failed policies of the past can easily become a slow and faltering process, largely because political influences reinforce initial policy choices. This in
Preface
xv
turn condemns particular economies to protracted periods of modest performance and even stagnation. Such a sympathetic and nuanced interpretation is important in understanding why the South Asian economies were unable to reach a phase of rapid, broad-based growth in the 1970s despite optimistic predictions about their future in the 1960s and even the 1950s. This study also accepts the standard refrain that policy reform entailing macroeconomic stability, trade liberalization (including a hospitable climate for foreign investment), privatization and deregulation and determined public action in the areas of basic education and health are the key ingredients of national economic success. This may be construed as a mere reaffirmation of current orthodoxy, but it is difficult to ignore the robust edifice of theory and evidence that has built up over decades. This study embraces the view that economists can no longer regard themselves as technocratic guardians of neutral policy advice. This means focus must shift from policy reform per se to the more challenging task of implementing institutional reform that will invigorate the capability of the political leadership to bring about rapid, sustained and poverty-reducing growth in South Asia. The central task is to redirect the focus of governments in South Asia in order to ensure that the core functions of the state (i.e. a stable, non-distortionary policy climate, a secure foundation of law, investment in basic education, health and infrastructure, protection of the vulnerable and protection of the environment) are efficiently provided. At the same time, the reform agenda must be sensitive to the goal of ensuring that durable democratic institutions, traditions and values have been preserved. This is a fundamental challenge, but one that must be met in order to secure the emergence of a prosperous South Asia in the early part of the twenty-first century. This edition is the product of the collective efforts of three authors, particularly in terms of planning and designing and collecting research materials. Any remaining errors and omissions are the collective responsibility of the authors. Brisbane April 2009
Acknowledgements
This book was supported by financial assistance from the Griffith Business School of Griffith University, Australia. This assistance enabled Hossain to take time off from the daily routine of work and spend some time overseas as part of his sabbatical leave. He paid a few visits to India over 2005 and 2008. He collaborated with Professor Rajat Kathuria of the New Delhi-based International Management Institute (IMI). Hossain also benefited from attending several conferences of the National Association of Software and Services Companies (NASSCOM), based in New Delhi, on the subject of India’s information and communications revolution since the mid-1990s. Kathuria gratefully acknowledges the support of Dr Mahesh Uppal and Mamta of the Indian Council for Research on International Economic Relations (ICRIER), based in New Delhi. They jointly produced the chapter on the econometric analysis based on a field survey on mobile phones in India (Chapter 14). This study was supported by Vodafone Group and published earlier in the policy paper series of the ICRIER in January 2009. Islam is one of the authors of the first edition of this volume. Some of his works have been adopted in this edition as well. He would like to acknowledge the support of the World Bank while preparing his contributions. The work of Reza Kibria for the first edition was helpful in updating some financial and environmental data in the present edition. We once again acknowledge his support and cooperation. Robyn White of the Department of International Business and Asian Studies of the Griffith Business School applied her inimitable skills in transforming a chaotic manuscript into a readable draft. The authors gratefully acknowledge her support. Moazzem Hossain Rajat Kathuria Iyanatul Islam
Part I
Introduction
1
South Asian economic development Post-independence era
South Asia consists of a number of states of very disparate size and complexity. It ranges from the vast economy of India, with a population of more than 1.2 billion, which ranks fifth in the world in terms of industrial production, to the tiny Maldives, with a population of about 300,000 and an economy primarily based on fishing and tourism. The South Asian region bears the dubious distinction of being home to more than 400 million (20 per cent) of the world’s poorest people. It also accounts for approximately 50 per cent of the world’s malnourished children (Haq and Haq 1998: 14). The global mission to reduce poverty in the developing world will be substantially enhanced if one can successfully engender rapid and sustained growth in the region. This study focuses on the four populous economies of South Asia: Bangladesh, India, Pakistan and Sri Lanka. This is partly due to pragmatic reasons (i.e. constraints of time and resources and ready availability of information and analyses) and partly due to the need for finding regional generalizations that can in turn be linked to the key issues in the broad domain of development studies. The smaller economies of the region represent distinct policy challenges and particular circumstances that cannot be easily accommodated to the goals set in this study. The story of the four South Asian economies can be described as a case of a promising beginning that never quite consolidated into sustained economic success. They were – or at least some of them were – endowed with initial conditions that were, in many ways, better than those faced by some of the East Asian economies. This is a conspicuous fact because many of the economies of East Asia – the Northeast Asian industrial giants of Taiwan (Province of China), South Korea and mainland China, the vibrant city-states of Hong Kong and Singapore and the dynamic Southeast Asian economies of Indonesia, Malaysia and Thailand – have attracted worldwide attention as rare exemplars of rapid, sustained, shared and poverty-reducing growth. Admittedly, some of these success stories (such as Thailand, Malaysia and Indonesia) have gone through a period of turbulence since the 1997 financial crisis, but one cannot be but impressed by the enduring results of the ‘East Asian miracle’. Today, South Asia is often exhorted to learn from success by ‘looking east’. Yet, as Hicks (1989) notes, there was a time when prominent economists predicted that countries such as India and Sri Lanka would be the economic success stories of the post-Second World War period.
4
Introduction
The above discussion has alluded to the type of methodology that is best suited to the analysis of national economic success or failures. One can – as this study does – adopt an explicitly comparative perspective. Alternatively, one can undertake an in-depth examination of individual countries. Both approaches have their merits, but the literature on South Asian economic development seems to be dominated by country-specific expertise (especially on India) rather than scholarship that seeks regional generalizations. As Table A1.1 (see Appendix 1.1) shows, out of the selected sample of more than 50 books and book-length monographs spread over the 1950–2005 period, one can find only ten studies that can be strictly classified as approximating the genre that characterizes this book: an overview of development economics in a broad regional setting. Several of these studies are quite dated (in terms of facts, not necessarily in terms of ideas!), given that they were published in the 1970s and 1980s. Hence, one can claim with some justification that this second edition will not be overwhelmed by a crowded field. The focus of this chapter is on initial conditions, but it also reflects on some of the reasons behind the rather gradual and hesitant disengagement from inappropriate policies of the past that lie behind the protracted period of modest performance of the economies of the region over a period of almost half a century. One hopes that such an analysis will provide a pertinent background for appreciating the agenda of reform that will occupy South Asia as it embraces the present millennium.
Initial conditions This section develops the following themes: • •
The South Asian economies were, in some respects, better off than some East Asian economies in the 1950s and 1960s – a point that was noted above. The legacy of British colonial rule that South Asia inherited was, in some respects, a boon rather than a burden when one considers the tradition of fiscal conservatism, the development of a modern civil service and the advanced nature of industrialization in colonial India relative to world norms.
Reflecting on a case of failed potential: South Asia in the 1950s and 1960s ‘The 1960s’, observes Bruno (1995: 9), ‘look like the golden age of economic development’. This is an apt metaphor for South Asia. Consider Table 1.1. It compares GDP per capita (expressed in PPP terms: US$) and basic human development indicators of Bangladesh, India, Pakistan and Sri Lanka with South Korea (henceforth Korea) – an archetypal East Asian economy – in 1960 and 1995. The striking fact is that in 1960 Korea was poorer than Pakistan and Sri Lanka and was only marginally richer than Bangladesh and India. Yet, by 1995, Korea graduated to a ‘high-income’ economy (as classified by the World Bank). It became a member of the OECD in 1996 and is poised to reach the rank of ‘Group of 7’ (G7) nations by 2020 (Korea Development Institute 1995). The South Asian economies, on the other hand, remain laden with the dubious label of ‘low-income’ economies.
South Asian economic development
5
Table 1.1 Initial conditions: per capita GDP and human development indicators, 1960–95, South Asia vs. Korea Country
Bangladesh India Pakistan Sri Lanka Korea
GDP per capita ($PPP)
Adult literacy
Life expectancy (yrs)
1960
1995
1970
1995
1960
1995
621 617 820 1,389 690
1,380 1,400 2,230 3,250 11,450
24 34 21 77 88
37 51 36 90 95+
39.6 44.0 43.1 62 53.9
56 61 62 72 72
Sources: UNDP (1996); World Bank (1997)
Another issue worth emphasizing is that in 1960 India had already achieved one of the so-called ‘golden rules’ of growth as proposed by Lewis (1955), namely, that self-sustained growth requires a national saving ratio of 12–15 per cent. The saving ratio for India in 1960 was well within the Lewisian benchmark and never fell below it in subsequent years. In contrast, the national saving ratio for Korea in 1960 was apparently a mere 1 per cent (James et al. 1989: 64)! Table 1.2 extends the notion of initial conditions by focusing on the notion of ‘convergence’ over the 1950–95 period – that is the extent to which the economies being considered have, over the designated period, converged to US living standards (also measured in per capita PPP dollars). The basic notion behind convergence is that poorer economies grow faster than richer nations (using USA as a benchmark) and – as a result – catch up with their affluent counterparts (Helliwell 1994). As expected, there is rapid convergence in the case of Korea, but hardly any such evidence for South Asia. This simply reflects the rather different growth rates that were achieved – particularly after the 1960s. Per capita real income growth rates in the 1960–70 period for South Asia as a whole was 1.8 per cent vis-à-vis 2.0 per cent – hardly a difference worth noticing. After the 1960s, the divergence became overwhelming: East Asia grew at rates (in per capita terms) that were overwhelmingly faster than Southern norms (UNDP 1996). Table 1.2 Per capita GDP of South Asian economies and Korea as a percentage of US GDP (PPP: US$) 1950–95 Country
1950
1960
1970
1980
1995
Bangladesh India Pakistan Sri Lanka Korea
— 7.1 9.0 11.4 7.6
8.3 7.5 7.8 10.2 8.2
7.0 6.5 8.4 9.4 11.8
6.5 5.7 7.6 9.4 24.8
5.1 5.2 8.3 12.1 42.4
Sources: Pre-1995 figures: Kravis et al. (1982, Table 1.4); Helliwell (1994: 24); 1995 figures: World Bank, 1997 Note Bangladesh was part of Pakistan until December 1971.
6
Introduction
The case of Sri Lanka is particularly striking. Even as far back as 1950, Sri Lanka’s average income was almost twice the level of that of Korea and its life expectancy in 1960 was significantly above the developing country standard. Not surprisingly, Sri Lanka attracted the epithet of the ‘best bet in Asia’ (Jiggins 1976). Yet, the best bet in the region simply fell behind. One could argue, of course, that relative income levels tell a misleading story. School enrolment rates in Korea in 1950 and 1960 were well above the norms achieved by Bangladesh, India and Pakistan so that by 1970 the gaps in adult literacy among this group widened very sharply (see Table 1.1). Some observers highlight this difference to explain the emergence of the Korean economic miracle. Thus, Birdsall et al. (1995) calculate that if Korea had Pakistan’s enrolment rate of 1960, its 1985 level of per capita GDP would have been 40 per cent lower than what was actually attained. Yet, there are nagging puzzles. Athukorela and Jayasuriya (1994: 29) note that in 1950, Sri Lanka’s school enrolment rate was markedly higher than Korea’s (54 per cent vs. 43 per cent). Why did Sri Lanka languish and fail to capitalize on its initial endowments while Korea flourished? One could invoke the incidence of internal political strife in Sri Lanka, but this really emerged in the 1980s, 20 years after the presence of growth-promoting initial circumstances! Yet another possible explanation lies in the perennial issue of reliability of data. The cynic could note that one is dealing with dubious statistics: Sri Lanka was simply not as well off in the 1950s and 1960s as the income figures and human development indicators suggest. While such doubts are well-founded, they are invariably difficult to resolve. It is beyond the competence of this book to offer firm judgements on the reliability of key statistics in Sri Lanka (and South Asia in general) vis-à-vis Korea (and East Asia in general). In the absence of pertinent expertise, this study seeks refuge in an agnostic assumption: while the overall quality of data varies over time, there are no systematic region-specific biases, so that key statistics on country A are as good (or as bad) as country B. One needs to move away from a mere emphasis on relative income levels (or even human development indicators) and provide a more complex interpretation of initial conditions by emphasizing historical legacies and institutions. It is at this juncture that one can emphasize common traditions that bind the economies of the region together – despite frequently highlighted differences in religion and ethnicity. The legacy of British colonial rule All four economies share the legacy of British colonial rule: the present-day legal systems and administrative and political structures of each still exhibit striking similarities to those of the British colonial period. The role of this legacy in influencing the evolution of the South Asian economies can be interpreted in different ways. One could argue that the colonial administrative structures were geared to the simple tasks of revenue collection and the maintenance of law and order rather than the much more complex tasks of social and economic development within a
South Asian economic development
7
democratic framework. The four South Asian nations, according to this interpretation, could not really liberate themselves from the shackles of history because they failed to creatively adapt the colonial administrative structure to the needs and exigencies of the modern state. The weight of theory and evidence suggests a more complex interpretation. One could argue that the South Asian economies in fact reacted against the perceived burden of history by uncritically embracing the dirigiste doctrine (more on which later) and thus gradually undermined the tradition of fiscal conservatism of the British colonial period. As Little et al. observe: Britain bequeathed to its former colonies both a Gladstonian tradition and an administrative setup conducive to ‘treasury control’ . . . Both survive in India and Pakistan, although they seem to be weakening over time. They were gradually undermined in Sri Lanka under . . . populist administrations . . . in the early 1960s and 1970s and could not be easily revived . . . (1993: 374) The tradition of conservative fiscal convictions was institutionally embedded. Corea (1965) and Gunasekara (1962) have drawn attention to the fact that Sri Lankan macroeconomic management was constrained by the British Currency Board System, which did not allow the conduct of independent monetary policy and did not permit deficit financing. These institutional arrangements were jettisoned after the formal disengagement from the British Raj. This development appears particularly ironic in light of contemporary debates on the need to enhance the institutional capability of developing economies to pursue prudent macroeconomic policies. As the subsequent chapters note, there is an emerging consensus that fiscal conservatism is an essential element of prudent macroeconomic policy and it needs to be embedded through a range of informal and formal mechanisms. As Fry (1991) and Lim (1995) emphasize, the South Asian economies are now struggling to come to terms with the weak fiscal position of central governments. They are being constantly exhorted by multilateral agencies, scholars and practitioners to engage in comprehensive fiscal adjustments. Such developments testify that South Asian policymakers failed to build on the historical bequest of fiscal restraint and adapt it to the needs of a post-colonial economy. Beyond the issue of fiscal prudence, there is a broader element of the British colonial legacy that deserves comment. The development of a professional civil service stands out. The colonial administrative structure in India was apparently so well developed in terms of professional procedures pertaining to recruitment, pay and promotion that it set a precedent for the reform of the civil service in England in the 1850s (World Bank 1997). Thus, the civil service model in the colonial period set the benchmark for the subsequent development of the civil service in the post-colonial Indian subcontinent. In the realm of industrialization, British colonial rule in South Asia made a major impact. Several observers have remarked that colonial India (of which Pakistan and Bangladesh were part) was one of the pioneers of Third World industrialization
8
Introduction
(see, for example, Bhagwati and Desai (1970), Kumar (1983), Bhattacharya (1979), Lal (1988, 1989, 1986), Lidman and Domerese (1970)). Here are some intriguing observations: •
•
•
Industrialization in colonial India began in the 1860s and the ‘. . . rate of growth of Indian industry . . . during the latter part of the nineteenth century has not been bettered since’ (Lal 1988: 199). ‘By 1914 the Indian economy had developed the world’s fourth largest cotton textile industry and second largest jute manufacturing industry’ (Lidman and Domerese 1970: 320–1). By 1913, 20 per cent of Indian exports were of modern manufacturing goods and total exports amounted to approximately 11 per cent of national income – ‘. . . a share not reached either before or since’ (Lal 1988: 200).
In contrast, the historical evolution of Korean industrialization appears much less impressive. To start with, modern industry in Korea took root at least 50 years later than India, that is from approximately 1910 with the onset of Japanese colonization (Chowdhury and Islam 1993: Ch. 2). This coincides with a period when industrialization in colonial India had reached maturity by prevailing standards. Ho (1984) also notes that the industries in colonial Korea were not efficient by world standards because they were not based on the criteria of comparative advantage but evolved to meet Japanese needs. In contrast, Lal (1989) emphasizes that the peak of industrial growth in colonial India coincided with a period of laissezfaire and free trade in the British Empire and decelerated with the onset of protectionist barriers. Tariff rates calculated from data provided in Kumar (1983: 924) show that tariff rates went up from an average of 7 per cent in the 1920s to 31 per cent by 1932. It also needs to be emphasized that the industrial base that Korea inherited from Japanese colonial rule was characterized by a high degree of regional concentration (Woo 1991): most of the heavy industry was located in the North. This meant that the division of the Korean Peninsula into North and South after the Korean War (1953) almost completely denuded the industrial base of South Korea. More than 80 per cent of the heavy industries went to North Korea. The Korean War also led to widespread destruction of life, property and infrastructure. Admittedly, the division of the Indian subcontinent in 1947 into two independent states (Pakistan and India) was also surrounded by extreme destruction and violence. It also meant that the industrial base had to be carved up, but the aftermath was by no means as dramatic as the aftermath in which Korea found itself in the 1950s. In sum, the legacy of British colonial rule inherited by South Asia placed it at a distinct advantage over an archetypal East Asian economy. This advantage became more conspicuous in the 1950s as Korea tried to cope with the ravages of the Korean War. Admittedly, it would be utterly naive to ignore the serious weaknesses and limitations of British colonial rule. Like all imperial experiments, it exacted a heavy cost in terms of the destruction of indigenous industries and the denial of self-esteem
South Asian economic development
9
for its subjects that only the acquisition of national sovereignty could restore. The British Raj also made inadequate investments in infrastructure, including education (Thavaraj 1960). In this respect, Japanese colonial rule appears to have had an edge (Ho 1984). Finally, one cannot avoid the fact that the British Raj was conspicuous for its failure to prevent famines (Sinha 1968) – a dismal record of human tragedy that never recurred in post-colonial and democratic India. Despite such caveats, the notion that British colonial rule provided the foundations for economic growth in South Asia remains intact.
Evolution of South Asian economies: the role of ideas and ideology Identifying initial and post-independence conditions represents an important and fundamental step in understanding the evolution of national economies. Such an investigation has in turn generated a central question: Why has South Asia failed to capitalize on its initial endowments? Some tentative suggestions were offered in the previous discussion, but the issue needs to be re-visited in greater depth. From the perspective of an economist, the particular policies that are adopted ultimately influence growth performance. The theme of this section is that ideas and ideology that drive the conviction of political leaders are important in understanding why particular notions about appropriate policies are assimilated and others are rejected. Moreover, once a given policy regime takes hold, the disengagement of failed policies of the past can easily become a slow and faltering process, largely because political influences reinforce initial policy choices. This in turn condemns particular economies to protracted periods of modest performance and even stagnation. Such a sympathetic and nuanced interpretation is important in understanding why the South Asian economies were unable to reach a phase of rapid, broad-based growth in the 1970s, despite optimistic predictions about their future in the 1960s. From the dirigiste doctrine to issues in governance: an overview Soon after gaining independence from British colonial rule, South Asia – in common with many countries in the developing world – embraced a development strategy whose key components formed the substance of the so-called ‘dirigiste doctrine’. This may be construed as an expression with pejorative overtones, but it is used here as a shorthand reference for a set of interrelated elements that form part of an overall policy approach. These elements include: • • • •
import-substituting industrialization (ISI); extensive state intervention in financial and labour markets; a significant reliance on state-owned enterprises (SOEs); a general predilection for detailed planning and regulation.
It should be emphasized that the precise timing of the onset of dirigisme in South Asia varied from country to country. India moved in a resolute manner from the
10
Introduction
eve of independence. In the case of Sri Lanka, import controls really started in earnest around 1956. The case of Bangladesh also deserves to be highlighted. It was part of Pakistan until 1971, when it emerged as an independent nation after the termination of a bitter civil war that exacted a heavy toll in terms of human lives and destruction of property and infrastructure. The adoption of the dirigiste doctrine in Bangladesh owes more to the particular circumstances of its history than to a conscious intellectual predilection among its politicians and policymakers. The process, as Turner and Hulme (1997: 178), drawing on Chowdhury (1992: 57–70), demonstrate, started in a fairly innocuous fashion. The political leaders, who found themselves in power in an independent Bangladesh, traditionally espoused centrist economic philosophies. They really did not have the ideological conviction or the organizational capacity to oversee an economy that was centrally controlled. Things changed inadvertently after the nine months of bloody civil war that preceded the acquisition of independence in December 1971. The government found itself picking up the ownership and management of 725 industrial units – representing 45 per cent of the country’s fixed assets in the industrial sector – because they were abandoned by its non-local owners who left the country. Within a few months, the government decided to embark on a programme of nationalization of jute, sugar and textile industries. This pushed the state ownership of modern industry from 34 per cent in 1971 to 92 per cent by mid-1972. Furthermore, all banks were nationalized and reconstituted into six banks. The ideological basis for this development was subsequently provided by the inclusion of socialism as one of the pillars of the Constitution. A detailed analysis of the causes behind this ambitious and sudden expansion of state ownership in Bangladesh is beyond the scope of this study, but the strategic context in which Bangladesh found itself matters. Both India and the former Soviet Union were the key allies of Bangladesh. They supported the political leadership militarily and financially in its fight to carve out a new nation. It does not seem too far-fetched to suggest that a grateful group of politicians and policymakers felt obliged to embrace the dirigiste ideals of India and the former USSR. With the benefit of hindsight, one can argue that the dirigiste doctrine in South Asia and elsewhere was misguided. Its inherent weaknesses have been exposed by the turbulent era of the 1970s and 1980s as issues in macroeconomic stabilization and structural adjustment became the global agenda for coping with traumatic change. Its decline has been precipitated by the dismantling of the Soviet Union and East European bloc. At the risk of some degree of overstatement, one can maintain that dirigisme lies at the root of the key problems that afflict the contemporary South Asian economies: low to moderate saving and investment (although India seems to have fared better than the regional average), low human development (with the exception of Sri Lanka), weak fiscal position of the government, inefficient state-owned enterprises (SOEs) and insufficient engagement with international markets. The policy prescriptions for coping with these problems are, by now, well known. Thus, there is the need for a credible commitment to fiscal prudence
South Asian economic development
11
as a core element of macroeconomic stability, determined public action in the areas of basic education and health, privatization and deregulation of both product and factor markets, a resolute move towards trade liberalization, creation of a conducive climate for the acquisition of foreign capital, human development and technology and the pursuit of regional co-operation within a multilateral framework. A focus on comprehensive policy reform in South Asia (and elsewhere) has gradually led to the realization that economists can no longer be technocratic guardians of neutral policy advice. Considerable research efforts are being invested by scholars and practitioners in trying to identify the elusive institutional variables that underpin the policy-making capacities of governments. This evolving intellectual tradition is typically subsumed under the rubric of ‘governance’, a term that tries to capture studies that focus on the ability of governments to promulgate and credibly implement appropriate economic and social policies as a means of understanding why some economies flourish and others falter. The issue of governability has clearly infected current thinking on development policy (World Bank 1997), but one can detect antecedents of this in the 1970s and earlier (back to Adam Smith!). Bauer (1971: 27), for example, admonishes developing countries for their ‘preoccupation with central planning (that) has, paradoxically, contributed to serious neglect of essential government tasks . . .’. These early reflections have proven to be remarkably prophetic. Issues of governability occupied the 2000s and the early part of this millennium. The intellectual roots of the dirigiste doctrine Why were the first-generation politicians and practitioners attracted to state-led development that entailed detailed planning and regulation and a focus on domestic markets? One has to understand the power of economic ideas and the way such ideas get assimilated in the political process. As Krueger (1993a: 353) acknowledges: ‘There is ample reason to believe that, in many developing countries, the initial choice of an import-substitution development strategy was made by well-intentioned individuals behaving as benevolent social guardians.’ The intellectual underpinnings of dirigisme can be traced to the work of a number of ‘first-generation’ development economists, such as Rosentein-Rodan, Nurkse, Singer, Prebisch and Myrdal (see Arndt 1987: Ch. 3). Bhagwati (1984) has re-interpreted this strand of scholarship as encompassing the twin notions of export pessimism and market failure. The export prospects of the primary products of developing economies were seen to be limited. In addition, international trade was seen as a mechanism of international inequality enriching the rich nations and impoverishing the poor – a view that developed into ‘dependency theory’ (e.g. Furtado 1973; Sunkel 1969). The typical developing economy was also characterized by endemic market failure expressed specifically as the failure of private producers to internalize external economies (Rosentein-Rodan 1943). Mainstream economics was belittled as a ‘special case’ reared in the cultural, social and political context of Western market economies (Seers 1962). These concerns evolved to a
12
Introduction
stage where they entailed a focus on state-led, ‘big-push’ industrialization that relied primarily on domestic markets. It is in such a prevailing intellectual milieu that the first-generation policymakers in South Asia and elsewhere put dirigisme into practice. The notion of autarkic industrial development was particularly influential in India through the role of Mahalanobis, ‘physicist turned planner’ (Arndt 1987: 76). India was one of the first – if not the first – country in the developing world to produce a meticulously detailed development plan (it ran to 671 pages!) in 1952 (Turner and Hulme 1997: 136). It causes considerable surprise in retrospect to realize that the author of this plan – the Indian Planning Commission that was set up in 1950 – became the precedent for the creation of the Economic Planning Board in Korea in 1961, but with rather different results (Haggard 1990). The demise of the dirigiste doctrine: the early literature It is often suggested that the tide against dirigisme turned with a landmark report on a comprehensive evaluation of ISI in seven developing economies (which included some South Asian countries) by Little, Scitovsky and Scott (1970), but one can detect dissenting voices well before the publication of this report (Rodrik 1992). To take one prominent example, Raul Prebisch, regarded as one of the prime intellectual architects of ISI, apparently raised concerns about the viability of ISI in his later writings (Arndt 1987: 78–81). Power (1963) was one of the first applied studies of the impact of ISI. He regards Pakistan as a case of ‘frustrated take-off’ and pins the blame on ISI – although the prevailing perception was that Pakistan was a successful case of ISI (Papanek 1967). Despite such examples of dissent, it would be fair to say that the Little et al. (1970) report provided the primary intellectual ammunition against ISI. In retrospect, one is struck by the potency of its observations: The studies on the seven countries indicate that . . . policies that are followed to promote import substitution are harmful for the economic development of these countries. Industrialization sheltered by high levels of protection had led to the creation of high-cost industries . . . With high industrial prices, maintained behind high tariffs, industrialization has been carried out at a high cost to agriculture . . . Ponderous administrative control has held up decisions and has led to excessive stocks and the creation of a multitude of firms operating below capacity . . . The most serious result of these policies, however, is that the nascent industries have come to depend on their profits on government decisions, and so have formed the habit of devoting their efforts to obtain privileges by pressure on the government rather than by cutting costs. (Little et al. 1970: xviiiff) The emerging critique of ISI at the beginning of the 1970s was given a major boost by subsequent contributions (see, for example, Bhagwati 1978). One must also note the seminal contributions of McKinnon (1973) and Shaw (1973) on the
South Asian economic development
13
deleterious effects of interventions in financial markets that broadened the attack on dirigisme. These studies argue that such policy measures as selective credit allocation and general controls on interest rates led to ‘financial repression’. This in turn had ‘real sector’ effects: both the volume and efficiency of saving and investment were adversely affected. The net result was a drag on growth. Debates on interventions in financial markets continue to occupy current debates in development policy. It appears that the early enthusiasm that greeted the thesis of ‘financial repression’ with its clear message of the need to liberalize financial markets is being replaced by a more cautious view. There is a greater sensitivity to the complexity of the reform of financial markets and appreciation of the fact that it cannot be seen as the panacea to the economic problems that plague many developing countries, including South Asia. The issue of interventions in labour markets, and the way they formed part of a comprehensive critique of dirigisme, appears to have received less attention in the early 1970s. In the 1980s, a contribution by Fields (1984) drew attention to the thesis that variations in labour market interventions could partly explain variations in growth performance in the seven economies that he studied. The analysis of the relationship between interventions in labour markets and economic performance subsequently became embroiled in contentious interpretations on coercive labour legislation as the necessary price to pay for rapid growth (Deyo et al. 1987). Current debates on the role of the labour market in economic development seem to be shifting in a different direction. One detects the emergence of a more circumspect view that is questioning earlier, strident versions that labour market interventions per se are inimical to growth (see details in Part II). The rise and decline of dirigisme in South Asia South Asian policymakers were not completely unresponsive to the early warning signs of a range of problems affecting ISI. In fact, attempts at trade liberalization were made in 1964 in Sri Lanka (Athukorela and Jayasuriya 1994) and in 1966 in India (Lal 1995) – a timing that was quite close to the much-vaunted policy reforms that were implemented in East Asia. Sri Lanka also followed this up with a more comprehensive programme of liberalization after 1977. The programme was eventually undermined by an unsustainable public sector investment boom and the rise of ethnic hostility (Athukorela and Jayasuriya 1994). A study in 1967 even lists Pakistan among a group of countries that were successfully making the transition to export-oriented industrialization (Keesing 1967). Despite such examples of episodic trade liberalization in the 1960s and 1970s, the fact remains that the South Asian economies were still less open than their Southeast and East Asian counterparts at the beginning of the 1980s. Thus, the average tariff rate varied from 6.5 per cent in Singapore to 33 per cent in Indonesia; the corresponding rates ranged from 75 per cent in Bangladesh to 44 per cent in Sri Lanka (James et al. 1989: 33). The picture has changed for the better since the early 1990s thanks to the economic reform measures taken in almost all of the nations (see more in Part II).
14
Introduction
Why has there been such a slow dismantling of dirigisme in South Asia? Why is the region still some way behind – perhaps by a decade – than even Southeast Asia in terms of a vigorous adoption of economic reform? What are the forces that are at work in propelling the economies of the region towards further change? The answers to these compelling and complex questions are by no means simple and obvious, but some suggestions can be made. Some authors, such as Lal (1989, 1995) and Bhagwati (1993), find cultural antecedents. Thus, in India, ‘Brahmin’ bureaucrats with an entrenched disdain for business and an ingrained attachment to Fabian socialism remained wedded to the policies of the past. This was reinforced by a prickly nationalism that was manifested in a predilection to shun foreign markets and external expertise. Attitudes displaying prickly nationalism can, of course, be encountered in many parts of the world and are not the preserve of Indians. Despite this, an antibusiness, Brahmin bureaucrat model (reflecting India’s caste-ridden society) cannot be easily generalized to the rest of South Asia. In Pakistan, for example, one has always detected a coy alliance between the military, bureaucrats and big business (the so-called ‘22 families’ in the 1960s), an alliance that supported dirigisme, condoned the unequal distribution of economic benefits between East (presently Bangladesh) and West Pakistan and contributed to the tragedy of 1971 (Adams and Iqbal 1983). In the case of Sri Lanka, the model of the Brahmin bureaucrat clinging tenaciously to the tenets of regulation and control is also difficult to uphold, given that Sri Lanka made moves towards trade liberalization in the 1970s on a more significant scale than India did. Inter-ethnic hostility and the political difficulty of dismantling welfare subsidies probably played a role in slowing down the reform efforts. In Bangladesh, the emergence of a highly successful exportoriented garments industry in the early 1980s bears testimony to the ability of private enterprise to circumvent the limits posed by inward-oriented industrialization. The fact that an overall policy thrust towards much greater openness has not emerged is a reflection of entrenched political forces rather than a culturallydriven, anti-business ethic of the state. While country-specific factors are at work in restraining the capacity of the economies of South Asia to make a comprehensive and credible commitment to policy reform, there are common forces at work that suggest that the momentum for change will not go away. One of the common forces is represented by external actors – most notably multilateral and other international agencies who act as conduits for the transmission of new ideas and ideology pertaining to policy management. Studies on East Asia have consistently drawn attention to the fact that US aid advisers played a significant role in facilitating the policy change in Korea and Taiwan (Haggard 1988, 1990, 1994). It is worth remembering too that the intellectual onslaught against dirigisme was ushered under the tutelage of the OECD (the sponsor of the work by Little et al. 1970), the Asian Development Bank (the sponsor of the work on ISI in Southeast Asia) and the US-based National Bureau of Economic Research (NBER) (sponsor of the comprehensive studies by Bhagwati, Krueger and others). The World Bank took up this mission at a later
South Asian economic development
15
stage with a great deal of zeal and vigour and ushered in an era of ‘structural adjustment lending’ (SAL) in the 1980s. The antecedents of SAL may be seen in the well-established approach that the IMF has used extensively in dealing with countries undergoing balance of payments (BOP) crises (Killick and Bird 1984). SAL, however, has tried to deliberately differentiate itself from the IMF approach by emphasizing medium-term and long-term issues in policy reform rather than limiting itself to short-run stabilization issues (which is seen as the preserve of the IMF). SAL may be interpreted as an attempt to formalize the role that donors and foreign experts in developing countries play as catalytic agents for change. Thus, concessional loans are granted to developing countries in exchange for ‘conditionalities’ that have to be met. Inevitably, such conditionalities have meant a demonstrated commitment to a reduced level of government intervention in the economy. They have also included institutional and administrative reform as part of the conditionalities. Despite the long-standing relationship with the World Bank and frequent contact with the IMF, the general verdict is that a donor-driven policy reform agenda has had modest success in South Asia. This is consistent with the view of critics who – drawing on the experience of SAL in other parts of the world – argue that a SALtype approach has been quite modest in terms of influencing long-term economic growth as governments have worked out ingenious strategies for neutralizing or diluting the policy reform agenda of donors (Mosley et al. 1991). The implication is that external actors face inherent limits when they take on the ambitious task of using financial leverage for shaping economic changes in sovereign nations. It can work in some cases, as it apparently did in parts of East Asia. External actors seem to be particularly productive in the more general area of advocacy of new ideas in policy management and institutional reform. Ultimately, the conviction and commitment of the national leadership crucially matters. Such convictions and commitments are partly a response to paradigm shifts in the domain of development policy that typically occur under the tutelage of international organizations; they are also a recognition of the long-term problems created by dirigisme. One of the long-term problems of dirigisme that is sowing the seeds of change is a continuing ‘fiscal crisis’. This view is clearly seen in the work of Lal (see Lal and Wolf 1986; Lal and Myint 1995; Lal 1987, 1989, 1995). It can also be detected in the work of Fishlow (1990) on Latin America and Krueger (1993b), although the latter is couched in a more general framework. The thesis of the fiscal crisis may be briefly summarized as follows. Once an initial policy choice in favour of dirigisme is made, it creates a group of beneficiaries who in turn supports further state control and deregulation thus ‘. . . politically reinforcing initial policy choices’ (Krueger 1993a: 352). Over time, the vicious combination of entrenchment of politically-determined benefits to favoured groups, the consolidation of an informal economy (or ‘black economy’) that emerges in response to pervasive regulation and slow economic growth erode the government’s revenue base in the face of inflexible expenditure commitments. This creates a fiscal crisis. Governments try to cope with them through a combination of the inflation tax, and internal and external borrowing. Such attempts are
16
Introduction
usually reflected in more acute BOP and political crises. The response generates ‘reform cycles’. An initial effort to cope with an impending crisis typically occurs with a package of stabilization-cum-liberalization policies; once the crisis is over, there is a tendency to revert to politics as usual. However, because the underlying economic performance does not improve on a sustainable basis and because the political forces retarding change in a dirigiste regime remain largely intact, the fiscal crisis re-emerges to generate yet another announced (but unsustainable) reform programme. One can detect features of the reform cycle in South Asia. One only has to recall short-lived episodes of liberalization in the 1960s and 1970s and modest progress in the 1980s in implementing donor-driven initiatives. Whether the economies of the region will break out of these oscillations between reform and retrenchment into a sustained phase of radically changed policies is a central question that remains unanswered even after substantial efforts and major reforms that have advanced since the early 1990s.
Objectives This second edition takes the view – articulated at some length in the final chapter – that the promise lies in moving away from policy reform per se to the more challenging task of implementing institutional reform that will invigorate the capability of the political leadership to bring about rapid, sustained and poverty-reducing growth in South Asia. The major objective and the theme of this second edition can be captured by the following observations. The central task is to re-direct the focus of governments in South Asia in order to ensure that the core functions of the state (as mentioned in the Preface) are efficiently provided. At the same time, further reform agenda for the 2000s and beyond must be sensitive to the goal of ensuring that durable democratic institutions and sustainability in newly found information economy are preserved. This is a fundamental challenge, but one that must be met in order to secure the emergence of a prosperous South Asia in the twenty-first century.
South Asian nations and a brief political history South Asian nations are Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The major religions in South Asia are Hinduism, Buddhism and Islam. The region is packed with people with numerous ethnic backgrounds. Class and caste are ancient problems in South Asia (see Uppal 1977: 120–51). There are problems of occasional religious intolerance in two fronts: Hindu-dominated India and Muslim-dominated Pakistan and Bangladesh. However, at present, these are not as acute as they were in the past except in India. Since 11 September 2001 this region has changed drastically due to several terrorist attacks carried out in India and Bangladesh. Pakistan has been seen as the home of terrorism and has been the victim of major attacks in recent years with the assassination of its leader Ms Benazir Bhutto in 2008. In Sri Lanka the civil war over the last 25 years reached
South Asian economic development
17
a climax, having government forces taking over territories captured earlier by the separatist Tamil Tigers. In the next section, a brief political profile of the four countries is presented and some of their unique features are highlighted. The major sources of information presented in the next section are daily newspapers of individual countries and weekly publications such as Asiaweek, The Economist and so on. Bangladesh Bangladesh currently has more than 150 million people compared to 75 million at the time of its independence in 1971. During the last 35 years, the population has increased by almost 2 million a year. Bangladesh’s overwhelming problem is control of population. This vast population has created all sorts of problems for Bangladesh on all fronts: economic, political and/or social. Almost 70 per cent of the total population lives in 100,000 villages. More than half of them have no land resources to earn income and they are considered as landless. For this huge number of people, the main sources of income are daily wage labour in agriculture and occasional off-farm works. These workers are the people who are the main victims of underdevelopment, including malnutrition, food poverty, illiteracy, a high rate of child mortality, poor housing, poor health, poor sanitation and low life expectancy. At least 60 million people of rural Bangladesh suffer from acute problems of underdevelopment. By any standard, this is a huge developmental task for the country. Bangladesh’s political atmosphere since 1974 (following a devastating famine which has killed almost 2 million people) did not help to take any meaningful step towards solving the problems of development, except making some ad hoc move by the government of the day through donors’ involvement and also participation of some non-governmental organizations (NGOs) of both domestic and foreign origins. Political instability began with the assassination of Bangladesh’s architect and creator, Sheikh Mujibur Rahman, by some disgruntled mid-level army officers in August 1975. After this incident, a series of military coups and counter-coups threw the country into a major political crisis which still prevails, although some progress has been made on the democracy front since 1991 (Hossain 2009). In early 2009, Bangladesh again had its democratic government in place, led by Sheikh Hasina as Prime Minister for the second time in the last 17 years. It followed a caretaker government, backed by the military, which ruled the nation in 2007 and 2008. India The profile of pre-1990 India has been summarized by Sen (1990) in the following manner: India’s reputation as a land of riches is as ancient as the history of its poverty. The mixed reputation has changed in recent centuries, and India is seen these days primarily as a land of poverty, famines, diseases, squalor, caste,
18
Introduction untouchability, separatism and chaos. This reputation is not altogether undeserved. (Sen 1990: 7)
Is modern day India as pessimistic as Sen, a world famous Indian-born economist and Nobel laureate in economics, sees it? Who is to blame Sen? The 60 years of independence brought India a good deal of reputation worldwide. These include the world’s largest democracy, second largest populace nation, third largest economy (GDP in PPP terms) and, last but not least, the largest movie maker (Hollywood being the second largest). Such reputation was offset by tragic images of human indignity, poverty and sufferings until the beginning of the new millennium. Today’s India has 30 per cent (almost 300 million) of its people living in abject poverty compared to more than 40 per cent in the 1990s. By all means, this is a major breakthrough after a long and sustained period of low growth and high poverty. However, 300 million in abject poverty in the twenty-first century is indeed a very high number by any standard. Politically, India has shown great stability since independence in 1947. India has had a Westminster style of government since independence. The Indian Congress party, which brought independence from the British, has ruled for all but about 15 years. Out of Congress’s more than 40 years in government, Nehru, India’s hero for independence, his daughter, Indira Gandhi, and his grandson, Rajiv Gandhi, ruled the country as Prime Minister for more than 35 years. This party once again led a coalition government between 2004 and 2009 under the premiership of a former World Bank official, Dr Manmohan Singh, who initiated the economic reform process in the 1980s and early 1990s as the then finance minster of India. In the general election held in May 2009, the government of Dr Manmohan Singh returned. It will govern India for another five years, until 2014. Pakistan The word ‘Pakistan’ first surfaced in the later part of the British rule of the Indian sub-continent. Poet-philosopher Muhammad Iqbal articulated the concept in 1931 when he proposed a separate state for Muslim majority provinces in northwestern India. The word ‘Pakistan’ was borrowed later on by the All India Muslim League to name the new nation of Pakistan. It emerged as an independent state in 1947, without satisfying the wish of Iqbal but within the framework of Jinnah and his followers. Pakistan was formed in two wings, east and west, separated by a hostile independent India for almost 1,000 miles. Ultimately, the east wing (now Bangladesh) was separated for good in 1971 after a bloody civil war. The west wing finally became Pakistan, the geographical location of which has partly satisfied the dream of poet Iqbal. Pakistan has a turbulent political history which has continued to the present. The first casualty of political assassination in Pakistan was former Prime Minister Liaqat Ali Khan in 1952. In 1956, it proclaimed an Islamic Republic. Under chaotic civilian governments in the centre as well as in the east and west wings over 1956–58,
South Asian economic development
19
the military intervened in the central government and took power in 1958. General Ayub Khan proclaimed martial law throughout Pakistan and ruled until 1969, when he was deposed by General Yahya Khan during a civil disobedience movement. General Yahya promised to hold a general election immediately after assuming power. He kept his promise. A general election was held in 1970. In the Parliament of Pakistan, 56 per cent of the Member of Parliaments (MPs) came from the east wing and the rest came from the west wing. All of the east wing’s members were won from the east wing by the Awami League under the leadership of Sheikh Mujibur Rahman. In the west wing Zulfikar Ali Bhutto’s Pakistan People’s Party won all members. However, in an absolute sense, the Awami League was elected as the majority party in the 300-member Parliament with 56 per cent of members. General Yahya declined to relinquish power to the majority party (in this case the Awami League) and Bhutto declined to sit in the opposition. This resulted in the deadlock of the 1970 general election results. The people of the east wing demanded that General Yahya keep his promise to transfer power to the hands of the elected government. The demand was denied. Instead Yahya’s military attacked the civil and security (police and para-military) installations in Dhaka to quell the civil unrest on the night of 25 March 1971. The independence of Bangladesh was declared on 26 March 1971 on behalf of the east wing’s leader Sheikh Mujibur Rahman, who was arrested and taken to the prison in Rawalpindi on the night of 25 March 1971. A civil war broke out in Pakistan and finally, with military intervention from India, Bangladesh gained liberation from Pakistan. Pakistan’s 93,000 troops surrendered to the joint forces of Bangladesh and India in Dhaka on 16 December 1971. After the civil war, Bhutto assumed power in the new Pakistan within the boundary of former West Pakistan. General Zia-ul-Haq deposed Bhutto in July 1977 and tried him for a political murder instigated by Bhutto. He was hanged in 1979. General Zia-ul-Haq was killed in a mysterious air crash in August 1988 after ruling Pakistan for almost a decade. Bhutto’s daughter, Benazir, became Prime Minister in 1988 but was dismissed by the President on a corruption count in 1990. Newaz Sharif was voted to the power in the next election but was also dismissed by the President in 1993 due to charges of electoral fraud and massive corruption. The Supreme Court restored the government of Newaz, but he resigned. In the 1993 election, Benazir was swept back into power and was Prime Minister of Pakistan until November 1996, when she was sacked by the President on corruption and incompetency grounds. A general election was held in February 1997 and was won by the Muslim League headed by Newaz Sharif, who once again became Prime Minister of Pakistan. In 2000, Pakistan reverted back to military rule by General Parvez Musharraf, who ruled until a general election in 2008, when he was thrown out of power. The Pakistan People’s Party (PPP) of the late Benazir Bhutto won the election and her husband, Asif Ali Zardari, became President (for five years). Since early 2009, President Zardari has become embroiled in a deadly tribal war against Taliban insurgents in Swat Valley, the north-western province of Pakistan.
20
Introduction
Sri Lanka The Sri Lankan political profile, since its independence from the British on 4 February 1948, is a mixed bag of stability and political adventurism. Among the four countries of this study, it is Sri Lanka which the British left in a sound state in both economic and political terms. Being an island-state, Sri Lanka – the British called it Ceylon – was a jewel in the British Indian crown. Sri Lanka was a home of scenic beauty and paradise in the Indian ocean. In modern days, however, the paradise is lost due to political adventurism by Sri Lankans. Over the last 25 years, the country has become a land of separatism and ethnic violence. D. S. Senanayake was the first Prime Minister of Ceylon. After gaining independence, Senanayake ruled the country until 1953. Solomon Bandaranaike formed a strong government in 1956 after a short transition period between 1953 and 1956. However, he was assassinated by a Buddhist monk because of a religious disagreement in 1959. The country was then led by Srimavo Bandaranaike, the wife of Solomon Bandaranaike, until 1965. From 1965 to 1970 the country was governed by Dadley Senanayake, the son of the first Prime Minister. Srimavo regained power in 1970 and renamed the country the Republic of Sri Lanka – an expression with an ancient connotation – in May 1972. The long reign of Srimavo came to an end in 1977 when she lost the general election to a veteran campaigner of Sri Lankan politics, J. R. Jayewardene. Jayewardene replaced the 1972 Constitution and assumed power as Executive President of the country. During Jayewardene’s regime, the Tamil separatist movement erupted in northern and eastern provinces in 1983. Ranasinghe Premadasa, the former Prime Minister under Jayewrdene’s regime, was elected President in late 1988. In the meantime, the Tamil insurgency movement intensified in the northern and eastern provinces. There was an attempt by India in 1987 to mediate the Tamil conflict. India sent its troops in northern Jaffna to put down the Tamil uprising. Indian forces were withdrawn in early 1990 after the assassination of Rajiv Gandhi of India was linked to the Sri Lankan Tamil connection. The fighting between Tamil separatists and the security forces, including the army, reached a climax in mid-1991. Since 1992, military engagements have been withdrawn by both sides and attempts are being made to reach a peaceful political solution. The country was put into a great crisis again on May Day in 1993 when a suicide bomber killed President Premadasa in an election rally. In the 1994 election, Chandrika Bandaranaike Kumaranatunga, the younger daughter of Solomon and Srimavo Bandaranaike, swept into power. Chandrika assumed the position of President and made her mother Srimavo Prime Minister. Under the present constitution, the President is both head of state and head of government. Sri Lanka, despite fighting a civil war for the last quarter of a century, has enjoyed democratically elected governments over the last 60 years, unlike Pakistan and Bangladesh. In June 2009, the Sri Lankan government finally won the 26-year civil war against Tamil Tigers. The separatist movement by the Tamil minority comes to a halt with the Tigers completely eliminated by the Sri Lankan army from their last stronghold.
South Asian economic development
21
A brief summary of the political history of the four countries since their independence suggests one common feature. In all four countries, since independence, the government was changed through military intervention or political assassination at least once. This problem, in particular, destabilized the various governments in Pakistan and Bangladesh several times until the presently democratically elected governments came into place in both countries. India and Sri Lanka have enjoyed relative calm and stability in government, except both countries suffer from an acute problem of terrorism, regional insurgency and separatist movements. The other common feature of South Asia is poverty. As can be seen in Part II, substantial progress has been made on the poverty and Millennium Development Goals (MDGs) fronts over the last two decades. However, this progress has been reversed in the last two years due to the global food and fuel price crisis and global economic slowdown, the like of which has not been seen since the Great Depression in the 1930s, observed by a recent UN study. Over the last two years, the number of people in poverty has increased by 100 million in South Asia, and the total number of people in poverty has once again reached 400 million. This figure is the region’s highest in four decades. The UN further observes that presently three-quarters of the region’s population survive on less than $2 a day (Bonnerjee 2009). Indeed, this is quite alarming considering that almost all the nations in the region have had so much success in the last two decades.
Readers’ guide This study spans 15 chapters that are grouped into three broad clusters or parts. Part I contains four chapters, including this introductory chapter, which also includes a synoptic political history of the economies under study. There are also three empirically-driven chapters that review various aspects of economic growth, human development and demographic dynamics, primarily over the last two decades. The range of performance indicators for South Asia is linked with Southeast and East Asian benchmarks. Part II forms the bulk of this book. It encompasses nine chapters that cover a diverse range of key themes in South Asian economic development. The chapters cover human resources, labour market institutions, the MDGs, macroeconomic management, economic reform, trade liberalization, privatization and deregulation, direct foreign investment, regional integration, agriculture and rural development, climate change, poverty alleviation and information technology issues. The chapters highlight both achievements and deficiencies. Moreover, each chapter provides an introduction to the major debates. The issues are discussed in the context of received theories, including a critical assessment of them. Part III considers two topics: whether there are replicable lessons of success, focusing on the experience of mobile phones in India (Chapter 14), and an agenda on good governance for managing growth in South Asia in the era of the information revolution (Chapter 15). The emphasis is on identifying principles of good governance that transcend the geographical, historical and cultural boundaries of South Asia.
2
Benchmarking South Asian economic performance
The 1990s were characterized by increased growth in South Asian countries compared to the growth experienced in the 1980s. However, not all the nations in the region experienced uniform growth. The growth in India was phenomenal due to the economic reforms brought to this nation since the early part of the 1990s. In this chapter an attempt has been made to capture the overall economic performance of the four countries of the South Asian region. A comparative analysis of the four nations under study (Bangladesh, India, Pakistan and Sri Lanka) will be carried out with that of the four nations of Southeast Asia (Malaysia, Thailand, Philippines and Vietnam) in terms of economic factors such as growth rate, savings, investment, exports and imports over the 1990s. This analysis will at least partly help to answer the frequently asked question in the literature: Is South Asia catching up Southeast Asia? South Asia made a major breakthrough on the economic development front in the 1990s and early 2000s. In the analysis below, the economic performances between the period 1996 and 2006 as well as prospects for the future are emphasized.
An overview of economic performance With the help of Tables 2.1 to 2.9 the overall performances of the economic indicators in South and Southeast Asia have been captured. Growth performance Table 2.1 presents the information from the selected Asian countries on comparative sectoral (agricultural, industrial and service) and overall growth performance in the period 1991–2005. In recent years, on average annually, India grew almost 8 per cent (2000–05). Sri Lanka and Bangladesh grew moderately, 5.3 and 5.4 per cent respectively, whereas Pakistan’s rate was below 5 per cent (4.8 per cent). The political chaos and the terrorist threats over the period of the last ten years were behind the low growth in Pakistan. During the same period, the growth rate in Vietnam was 7.5 per cent. This is the fastest-growing nation in Southeast Asia. This nation was not hit by the currency crisis of 1997. The crisis-hit countries, however, grew moderately after 1997. For instance, Table 2.1 suggests that Malaysia’s rate of growth was 4.8 per cent, Thailand’s 5.4 per cent and the Philippines’ 4.7 per
4.3 3.9 5.5 5.2 8.3 2.1 7.9 5.6
4.7 6.8 6.1 3.8 8.8 3.9 6.7 7.2
5.4 7.7 4.8 5.3 4.8 4.7 5.4 7.5
4.0 7.7 5.2 4.4 3.3 3.2 3.6 7.2
2.1 2.2 3.7 2.3 2.1 1.8 3.5 3.3
1991–94 –1.9 3.7 6.7 –0.9 1.6 2.3 3.1 4.2
1995–96
Per capita Agriculture
2000–05
2004–05
1995–96
GDP growth
1991–94 2.5 2.5 2.3 0.7 3.4 3.9 1.9 3.8
2000–05
Industry
6.8 4.9 6.8 6.4 10.1 1.0 11.8 5.8
1991–94 5.7 8.7 6.0 6.2 10.9 3.8 8.2 10.8
1995–96
7.3 7.5 3.8 3.3 4.6 3.3 6.9 10.2
2000–05
Service
— — — — 7.5 3.4 8.9 8.1
1991–94
4.5 8.0 4.4 5.7 4.5 4.7 1.6 6.2
1995–96
Sources: ARIC (Asia Regional Information Center) (2004) at http://devdata.worldbank.org/hnpstats; Hossain, Islam and Kibria (1999); World Bank (2007)
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Country
Table 2.1 Sectoral growth rates 1991–94 and 2004–05 (%)
5.6 8.5 5.4 5.8 6.2 6.0 6.0 6.9
2000–05
24
Introduction
Table 2.2 Sectoral share of GDP 1990–2005 (%) Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Agriculture
Industry
Services
1990
1996
2005
1990
1996
2005
1990
1996
2005
30 31 26 26 15 22 13 39
31.9 26.1 24.8 19.1 12.2 15.5 12.2 25.8
20 18 22 17 9 14 10 21
22 28 25 26 42 35 37 23
19.7 31.7 26.4 32.1 46.9 31.5 43.0 32.5
27 27 25 26 52 32 44 41
29 41 49 48 43 44 50 39
48.4 42.2 48.7 48.7 49.0 51.6 49.6 41.7
49 54 53 57 40 53 46 38
Sources: ARIC (Asia Regional Information Center) (2004) at http://aric.adb.org; World Bank (2007); Hossain, Islam and Kibria (1999)
cent during 2000–05. All the South Asian nations grew strongly until 2005 compared to the rate of growth a decade earlier. However, this is not true for the countries in Southeast Asia. In terms of per capita growth rate between the countries of these regions in 2004–05 (keeping population growth rate in mind), India and Vietnam have been experiencing the highest rate (above 7 per cent). The lowest rates, however, were experienced by Malaysia and the Philippines (below 3.5 per cent). Table 2.2 provides information on the sectoral share of GDP in two regions of Asia, taking three periods into considerations: 1990, 1996 and 2005. The information highlights further structural changes which have occurred in these economies over the last ten years. In 1996, agriculture’s contribution to GDP was very high in Bangladesh and Vietnam, while contribution in India and Pakistan was modest. In Sri Lanka, Malaysia, Thailand and the Philippines the share was below 20 per cent. This structure has dramatically changed in 2005 for Bangladesh (20 per cent), India (18 per cent) and Vietnam (21 per cent). Between 1990 and 2005, the industry sector’s contribution to GDP has increased in every nation. Bangladesh’s increase has been by 5 per cent, Malaysia’s by 10 per cent, Thailand by 7 per cent and Vietnam by 19 per cent. In India, Pakistan and Sri Lanka the share remains unchanged. The services sector’s share of GDP has not changed dramatically in the Southeast Asia region over 1990–2005 except in the Philippines, which registered a major improvement. The services sector’s contribution to GDP in the Philippines increased from 43.5 per cent in 1990 to 53 per cent in 2005. This contribution declined in Malaysia (by 3 per cent) and Thailand (by 4 per cent) over this period. The South Asian services sector experienced an extraordinary expansion over the period between 1990 and 2005. Bangladesh expanded by 20 per cent, India by 13 per cent, Pakistan by 4 per cent and Sri Lanka by 9 per cent.
Domestic savings and investment Table 2.3 provides comparable information on saving and investment ratios as a percentage of GDP of the countries of South and Southeast Asia over 1990 and
Benchmarking South Asian economic performance
25
Table 2.3 Domestic savings and investment ratios (% of GDP) Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Gross domestic saving
Gross domestic investment
1990
2005
1990
2005
29 22 22 17 30 20 33 –2
31 32 18 20 36 31 29 34
17 24 19 23 32 24 41 13
25 33 17 26 20 15 32 35
Source: World Bank (2007)
2005. All the South Asian nations experienced growth in domestic saving and investment except Pakistan. In Southeast Asia, all the nations experienced improvement in saving except Thailand. In terms of domestic investment, all the nations except Vietnam experienced decline over this period. These figures further demonstrate that the countries hit by financial crisis in 1997 have not fully recovered with respect to domestic saving and investment. They also remained low until 2005 compared to the performance in the pre-crisis period.
Export growth and expansion Export growth and expansions are necessary conditions for achieving a high rate of economic growth in any country. Over the last 30 years, the Southeast Asian economies experienced strong growth in exports. Table 2.4 presents South and Southeast Asian performance with external trading over 1990 and 2005. South Asia’s country-specific analysis suggests that among the four countries studied, in 1990–2000, all the countries except Pakistan showed strong growth in Table 2.4 External trade annual change (%) Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Exports
Imports
1990–2000
2000–05
1990–2000
2000–05
13.1 11 1.7 14.2 12 7.8 9.5 24.1
8.3 15.4 1.6 9.1 6.1 5.4 6.6 16.6
9.7 12.8 2.5 8.8 10.3 7.8 4.6 28.2
5.6 18.4 7.1 4.5 6.8 6.2 8.8 19.9
Sources: ARIC (Asia Regional Information Center) (2004) at http://aric.adb.org; World Bank (2007)
26
Introduction
Table 2.5 Current account 1990–2005 (balance of payment in million US$) Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Current account balance
Total reserves
1990
2005
1990
2004
— –7,036 –1,661 –298 –870 –2,695 –7,281 —
167 6,853 –3,463 –647 19,980 2,338 –3,670 217
— 5,637 1,046 447 10,659 2,036 14,258 —
1,178 137,825 11,109 2,736 70,450 18,474 52,076 9,051
Source: World Bank (2007)
exports. In contrast, in 2000–05, the export growth declined in Bangladesh and Sri Lanka. In India and Pakistan exports have been increasing. In Southeast Asia exports declined in all the nations in 2000–05. Malaysia’s exports have declined by almost half in 2000–05. These results show again that the nations hit by financial crisis were the worst performers during the last decade. The import growth in recent years has also remained subdued in all the countries except Thailand. In the South Asia region, imports have increased in all nations except Bangladesh and Sri Lanka. Table 2.5 provides information about the expansion and contraction in merchandise trade over the 15-year period between 1990 and 2005. Over this period, current account in the BOP in India improved significantly. In 1990, all the nations were in deficit. This deficit was converted into surpluses by India and Bangladesh in 2005, while Sri Lanka and Pakistan remained in deficit. The current account deficit worsened for both these nations in 2005 compared to 1990. In Southeast Asia, all the countries were in deficit in 1990. However, Malaysia’s improvement in current account up to 2005 was phenomenal. The Philippines and Vietnam also improved significantly, while Thailand remained in deficit in 2005. Table 2.5 further suggests that foreign reserves have improved for all the nations in both regions up to 2005. The reserves for India stood at $138 billion, while Malaysian reserves hit $70 billion and Thai reserves were more than $50 billion. All these nations certainly made major breakthroughs in accumulating foreign reserves over 1990 and 2005. In recent years, these figures jumped even further. Indeed, India, Malaysia and Thailand crossed a major milestone in recent years as far as the foreign reserve is concerned.
Integration with the global economy It is now well established that, in recent years, the development aid attracted by both South and Southeast Asia has been negligible. The source of major external funds was through foreign direct investment (FDI) and integration of these economies with global trade. For example, one of the most important indicators
Benchmarking South Asian economic performance
27
Table 2.6 Integration with the global economy Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Merchandise trade (% of GDP)
Trade in services (% of GDP)
Net Foreign Direct Investment (% of GDP, net inflows)
1990
2005
1990
2005
1990
2005
17.6 13.1 32.6 57.3 133.4 47.8 65.7 79.7
38.5 28.5 37.3 64.7 196.1 89.5 129.3 129.9
3.6 3.4 8.8 13.4 21.2 11.3 14.9 —
5.7 8.2 10.1 15.5 31.9 10.4 27.3 18
— 1 0.6 –0.2 5.3 1.2 2.6 2.8
1 1.8 2 8.4 3 1.1 0.2 3.7
Source: World Bank (2007)
for this was accumulation of foreign reserves over the last 15 years as presented earlier by almost all the nations under study. Table 2.6 presents some information about integration of all the economies with global trade in terms of improvement in merchandise trade, trade in services and attracting net foreign direct investment over 1990 and 2005. Merchandise trade and trade with the services sector over 1990 and 2005, as a percentage of GDP, improved for all the nations. Net FDI growth has been very strong for Sri Lanka. Almost 8.5 per cent of its GDP in 2005 was net foreign direct investment. The figures for Malaysia and Thailand were disappointing since net FDI declined for these nations in the post-currency crisis period. Indebtedness External indebtedness is one of the major indicators of a country’s performance in economic development and indicates the direction the economy is heading in the future. Over the last 15 years, in South Asia, the burden of external debt from various bilateral and multilateral sources has been declining. This has worsened in Southeast Asia. The sources of major multilateral debt are the World Bank, the International Monetary Fund (IMF) and the Asian Development Bank. To measure the consequences of external debt and its future trend in an economy, three major indicators are generally used. These are: external debt as a percentage of GDP, external debt as a percentage of exports and debt–service ratio. Debt– service ratio is an expression of total debt service (interest and part payment of the principal) as a percentage of exports. Table 2.7 presents this information for all the nations studied. By any standard, these figures are a matter of concern for Pakistan, the Philippines and Thailand. The rest of the nations demonstrate a comfortable zone in recent years (less than 5 per cent). In Table 2.8, a comparison has been made between South and Southeast Asian countries in their outstanding debt as a percentage of gross national income (GNI) and their debt–service ratio from export dollars in 2005. The debt–service ratio
28
Introduction
Table 2.7 External indebtedness 1990–2005 Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Total external debt ($ml)
External debt as % of GNI
Debt service as % of exports of goods and services
1990
2005
1990
2005
1990
2005
12,439 83,628 20,663 5,863 15,328 30,580 28,094 23,270
18,935 123,123 33,675 1,444 50,981 61,527 52,266 19,287
2.4 2.6 4.6 4.9 10.3 8.2 6.3 2.9
1.3 3.0 2.3 1.9 7.6 9.2 11.3 1.9
25.8 31.9 21.3 13.8 12.6 27 16.9 —
5.4 — 10.2 4.5 5.6 16.7 14.6 2.6
Source: World Bank (2007)
Table 2.8 Outstanding debt 2005 Country
Outstanding debt (% of GNI)
Debt service (% of exports of goods, services and income)
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
22 16 30 48 46 67 32 38
102 73 134 109 35 120 44 56
Source: World Bank (2007)
figures, once again, suggest that Bangladesh, Pakistan, Sri Lanka and the Philippines were unable to service debts from their exports-only income.
Major indicators of macroeconomic balance Three major macroeconomic indicators and their performances in recent years will be analysed in the conclusion of this chapter. These indicators are: the fiscal balance, movements in the exchange rate under a more flexible regime and the inflation rate. The estimates on fiscal deficit show how healthy the economy is in terms of lending and borrowing. The exchange rate figures show whether the rate is behaving in such manner that it will not be detrimental to the export-led policies of the government. The inflation rate shows the economy’s stability in terms of aggregate demand during a high-growth period. With respect to the above macroeconomic indicators, Table 2.9 provides a mixed picture during the period of 1990–2005. In all countries except Thailand, the fiscal balance worsened. In Sri Lanka and Malaysia, the deficit has been very
Benchmarking South Asian economic performance
29
Table 2.9 Major macroeconomic indicators 1990–2006 Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Fiscal deficit/surplus (% of GDP)
Exchange rate (units per US$)
Inflation (% per year)
1995
2005
2005
2006
1990–2000 2000–05
— –2.2 –5.3 –7.6 2.4 –0.8 — —
–0.7 –3.6 –3.2 –7.3 –4.3 –3.0 2.5 —
64.33 44.10 59.51 100.50 3.79 55.09 40.22 15,850.0
68.93 45.3 60.27 103.91 3.63 51.31 37.88 15,921
5.5 13.7 9.7 9.9 3.6 7.7 4.9 4.1
5.6 8.9 4.9 9.2 1.6 5.0 2.1 4.5
Source: World Bank (2007)
high allowing a comfort zone at 5 per cent of GDP. Sri Lanka’s deficit has been running at an alarming level (more than 5 per cent of GDP). This is mainly due to this country engaging in a civil war over the last 30 years. The currencies of all countries except Malaysia, the Philippines and Thailand have experienced further depreciation in terms of a year to year fluctuation over 2005–06. Among these nations, Malaysia has been practising a fixed exchange rate regime, pegging its currency against the US$ since 1997 (the year of the currency crisis). Inflation declined in all nations except Vietnam over 1990 and 2005. However, in recent years, due to current oil shock, the prices of food products have gone through the roof in all the nations. It remains to be seen how severely the oil shock impacts the overall inflation of the nations studied in the years to come. From the above analysis, it appears that all the countries studied, except Vietnam, are presently in a position to overcome the problem of economic underperformance which they have been experiencing since 1997. Vietnam, however, was not hit by the currency crisis of 1997 and has been performing steadily over the last 12 years. One must be cautious about the future developments in macroeconomic terms of these regions since the present global economic slowdown has the capacity to wipe out almost all the gains achieved over the last decade or two. It is now clear that the global economic slowdown will hit South Asia soon and will last for at least the next two years (until 2011). The way things are unfolding in the major trading partners of South Asian nations (mainly with garments) and the retreat of migrant workers (from the Middle East and Malaysia), could turn into full-blown economic turmoil if the nations fail to prepare for the rough road ahead. It is clear by now that the region has gained economic growth in the latter part of the twentieth century against all odds (e.g. corruption, administrative inefficiency and overpopulation). The fear, though, is that the region has less exposure and credibility in managing financial crisis of a global nature. Thus, one must take a long and hard look at those countries that have managed such a crisis before, even if the crisis was not global in nature. In this regard, the Southeast and East Asian financial crisis of 1997 immediately comes to mind. ‘Bailout’ is a popular term all over the globe nowadays, although it is not new. In
30
Introduction
this part of the world, bailing out nations from financial turmoil was witnessed first when the IMF and other friendly developed nations bailed Thailand, Korea and Indonesia out from the crisis of 1997. Contrary to this, it was observed that Malaysia was also a crisis-hit nation that refused to be bailed out by the IMF in 1997. The condition in 2008 and 2009 is somewhat different. This time the crisis began with the US and other OECD nations, thus no IMF is available to bail them out. Plus, in the case of Southeast and East Asia, the amount of bailout money needed was in the billions, and now it is in trillions, at least in the cases of the US and the EU. The bailout waves have hit South Asia as well. Some apex business bodies in the region are requesting the governments to bail them out from the present crisis with millions and billions of dollars. It appears that the business of bailout by the state is certainly not clear to the ordinary readers and students. In simple words, as they say, under the bailout plans, the incumbent government wants to support big businesses with the tax payers’ money, or from borrowing it, so that these businesses do not go broke and the workers can be kept on the payroll until a recovery is in sight. Nations such as the US, Japan and EU countries have bailed out private businesses in recent months. What awaits South Asia? This is certainly going to be the key question needing to be answered by the policies of respective governments in this respect in the near future. Bailout or not, the present task is to keep the economy from bleeding from the great recession. For example, for a nation like Bangladesh, with the lowest credit rating and poor foreign reserves, the prospect of a bailout is very limited without indulging in printing money. It all depends on how hard the economy lands over the next two years and how the multilateral donors behave during the time of crisis for the nations such as Bangladesh. For the nations, rich or poor, at the end of the day, the major issue is recovering with minimum damage inflicted to the economy and recovering within the shortest possible time. In this regard, the recovery in East Asia, particularly Korea, has been spectacular between 1997 and 1999, with a bailout support by the IMF. In contrast, Malaysia’s recovery in Southeast Asia from the Asian currency crisis, if not spectacular, was certainly remarkable without any support from the IMF or others. One should keep in mind here that the IMF support for Korea came in 1997 against some stringent conditions imposed by the IMF. The then government of Dr Mahathir Mohammad, however, refused to accept such support for Malaysia. In the end, both Korea and Malaysia recovered, although Malaysia’s recovery was slower by a few years. It is clear that by 2005, both Korea and Malaysia recovered. They have been growing again. Both the economies hit an almost 5 per cent growth level in 2003 and the inflation was brought down to below 3 per cent in 2005. During the crisis period (1997–99), both the countries were in deep recession. They, however, recovered from serious unemployment problems, which hit double digits during the crisis period, in early 2000. It must be emphasized, once again, that for the recovery, the nations in question adopted contrasting policies. One can learn several lessons from both the experiences presented above. At this stage, the most important issue for South Asia is to prepare for the worst and also get the people fully informed on the likely consequences before the crisis hits hard.
3
Benchmarking South Asia’s human development in the era of ICT
Human development as a development effort in South and Southeast Asia has been the most remarkable experience witnessed by both multilateral donors and by the NGO movement over the last three decades. Alongside economic growth, human development in the developing society has been emphasized by the United Nations Development Programme (UNDP)’s annual Human Development Reports since 1990. The major areas covered for human development estimate are: education, health, environment, personal security, community participation, political freedom and cultural identity for human well-being. The reasons for separating these areas from the core economic agenda of developing nations were simple: to make the process of development a complete well-being process of the society, and to make the quality and distribution of income growth an important ingredient of the economic growth process. The objective of this chapter is to demonstrate South and Southeast Asia’s condition in 2006 in human development compared to its condition in the 1990s.
Overall changes in selected social indicators So far the population statistics of the nations studied have indicated that remarkable improvements have occurred in demographic conditions over the last 30 years. In Table 3.1, a comparison has been made by country to show differences in various social indicators over the period between 1995 and 2006. The longevity indicator in all eight nations shows an improving trend over this period. Bangladesh’s average life expectancy over the last ten years has increased by more than seven years. Life expectancy in the rest of the South Asian nations, except Sri Lanka, increased by almost three years. Sri Lanka’s life expectancy declined. The Philippines’ life expectancy increased by six years and Malaysia’s life expectancy increased by three years. In Thailand, this increase has been marginal, while Vietnam shows an increase of six years. Infant mortality and fertility rates are in decline in all eight nations. However, in Bangladesh, the fertility rate remains constant. The rate of decline in Southeast Asia is more prominent in the Philippines, Vietnam and Thailand. The rest of the nations have been experiencing a very low rate since 1995. Primary school completion rates have been showing improvement in all the countries except India and adult literacy ratios have been signalling improvement in all the nations over 1995 and 2006.
32
Introduction
Table 3.1 Major social indicators 1995–2006 Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Life expectancy at birth, total (years)
Infant mortality rate (per 1,000 live births)
Total fertility rate (birth per women)
Primary school completion rate (%)
1995
2006
1995
2006
1995
2006 1993
2005 1995 2006
56 61 62 72 71 65 69 65
63.1 63.7 64.7 71.6 74 71 71 71
81 70 92 16 16 45 34 38
73 67 76 neg. 12 33 21 19
3.2 3.2 5.2 2.1 3.8 4.3 2.2 3.6
3.2 3.1 4 2 2.7 3.2 1.9 1.8
77 89 63 — 94 97 82 94
70 98 53 105 91 86 76 90
Adult rate total (% of population ages 15+)
37 51 36 90 19 92 8 90
47.5 61 49.9 90.7 88 93 53 90
Source: World Bank (2007, 2005); UNDP (2004, 2008); Hossain, Islam and Kibria (1999)
Development performance in health and education sectors between 1994 and 2005 This section provides an overview of South and Southeast Asia’s attempts to improve conditions in the areas of health and education over the last three decades. This section, in other words, makes intra-region and inter-region comparisons on social well-being. Health Over the last 30 years, the health sector has been one of the neglected areas in Asia. Out of the total budget spending, health attracted within the range of about 4–5.5 per cent of GDP in Southeast Asian nations in 2004. The expenditure in this sector in countries in South Asia, except Sri Lanka, has declined over the last 10 years. Sri Lanka’s increase was marginal. Table 3.2 presents the basic health record in the eight countries under study. All the countries, as mentioned earlier, have increased their average life expectancy over the last 12 years, except Sri Lanka. All these countries recorded remarkable progress in life expectancy in recent years. Access to overall health services has significantly improved in all countries. Access to safe drinking water shows a significant achievement by all these nations. Recently, Bangladesh provided safe drinking water to 74 per cent of its population, India to 86 per cent, Pakistan to 91 per cent and Sri Lanka to 79 per cent. In Southeast Asia, the Philippines provide safe drinking water to 82 per cent, Thailand to 84 per cent and Vietnam to 77 per cent of its people. Malaysia’s achievement in this sector remains at almost 100 per cent due to its strong per capita growth during the last three decades.
39
48
2.5
0.61
0.60
94 44 3
2.3
111 — 0
0.9
74
83
1.4
48
40
2.6
15
10
1.23
9
27
.547
Bangladesh
1.13
3.8
105 — 0
1.3
2.5
29
63
43
9
26
.619
India
0.63
3.8
89 — 55
0.9
6
33
86
47
8
24
0.69
2.7/3.2
65/106 — 0/0
1.8/1.8
1.9/6.9
47/63
60/57
12/62
8/6
37/18
.551
Pakistan
0.43
2.3/—
68/97 21/63 67/59
0.4/2.0
7.4/5.5
59/91
91/79
28/70
7/6
26/18
.743
Sri Lanka
0.38
5.2
94 — 0
1.5
0.1
—
98
90
5
29
.811
3.8
0.1
94
99
55
5
21
0.24
8.0
95 69 347
Malaysia
0.32
2.9
96 — 0
1.5
0.1
74
87
39
6.66
32
.771
0.24
3.2
93 61 47
3.4
1.2
83
86
49
5
24
Philippines
0.52
3.5
76 — 0
0.9
0.2
79
80
72
6
21
.781
3.5
0.5
96
84
72
7
16
0.20
4.2
86 64 110
Thailand
—
—
90 — 0
0.9
0.4
29
55
20
7
29
.733
5.5
0.5
47
77
77
6
18
—
9.7
94 69 129
Vietnam
Sources: UNDP (2004); Human Development Indicators (2004) http: hdr.undp.org/reports/global/2004/pdf/hdr04_HDI.pdf; World Bank (2007, 2004), http://devdata.worldbank.org/ hnpstats/query/SMResult.asp.s
Primary enrolment ratio (1993–2005) Secondary enrolment ratio (1991–2005) Internet users (per 1,000) (1990–2005) Public expenditure on education (% of GDP) (1994–2005) Ratio of education and health expenditure, and military expenditure (% of GDP) (1990–2000)
Education
Crude birth rate (per 1,000) (1996–2005) Crude death rate (per 1,000) (1994–2005) Contraceptive prevalence rate (% of women ages 15–49) (1993 to 2000–05) Access to improved water source (%) (1995–2000) Access to improved sanitation (%) (1995–2004) Physicians (per 1,000) (1993 to 2000–05) Health expenditure (% of GDP) (1990–2004)
Health
Human Development Index (HDI) (2005)
Sector
Table 3.2 South and Southeast Asia’s Human Development Record 1990s–2000s
34
Introduction
Education Government spending in education increased in all the countries except India between 1995 and 2005. This remained constant in India during the period. The use of the internet increased in all these nations in 2005. Malaysia was the highest user among the nations of these regions over this period.
Changes in poverty and income distribution Poverty has many definitions, however, for the purpose of this section the following definition by Quibria is taken into consideration. Poverty can be defined as: the inability to achieve an acceptable living standard. Living standard may be thought of as real income, appropriately measured, after adjustments are made for goods and services produced and consumed at home, for income-in-kind, for cost of living differences and for household size and composition. (1994: 188) Using $1US per person per day as the poverty line, Table 3.3 shows that in 2005 Bangladesh had 35 per cent of its population living in poverty, India had 33.5 per cent, Pakistan had 17 per cent and Sri Lanka had 5.5 per cent. However, in recent years all these nations have experienced an increase in poverty due to an increase in the prices of food grains worldwide. In Southeast Asia, the international measure of poverty was considered at $2US per person per day since in these countries the per capita income and cost of living are higher than the South. The Philippines had 31 per cent of its population living in poverty in 2004 and Thailand had 25 per cent in 2002. The figures for Vietnam are unavailable for Table 3.3 Changing level of poverty Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
National measure: population below poverty line
International measure: $2/person/day
Year
%
Year
%
Year
%
Year
%
1996 1994 1993 1991 1989 1994 1994 1998
51 36 28.6 20 15.5 40.6 9.8 37.4
2000 2000 1999 1996 — 1997 1998 2002
49.8 28.6 32.6 25 — 36.8 13.6 28.9
2005 2005 2002 2002 1993 1994 1992 —
35* 33.5* 17* 5.6* 22.4 62.8 23.5 —
2005 2005 2002 2002 1997 2003 2002 1998
84 80 73.6 41.6 9.3 30.6 25.2 63.7
Sources: World Bank (1990, 2001, 2004, 2007); http://www.worldbank.org/data/wdi2004/pdfs/table2-5.pdf; http://www.worldbank.org/wdr/2000/pdfs/engtable4.pdf; http://www.worldbank.org/data/wdi2001/pdfs/tab2_6.pdf Note: * Figures are $1/person/day.
Benchmarking South Asia’s human development
35
Table 3.4 Income distribution and PPP estimates of GNP Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Years of survey
2005 2005 2002 2002 1997 2003 2002 2004
Percentage of share of consumption
Gini Index
lowest
lowest
second
third
fourth
highest
highest
10%
20%
20%
20%
20%
20%
10%
3.7 3.6 4.0 3.0 1.7 2.2 2.7 4.2
8.6 8.1 9.3 7.0 4.4 5.4 6.3 9.0
12.1 11.3 13.0 10.5 8.1 9.1 9.9 11.4
15.6 14.9 16.3 14.2 12.9 13.6 14.0 14.7
21 20.4 21.1 20.4 20.3 21.3 20.8 20.5
42.7 45.3 40.3 48.0 54.3 50.6 49.0 44.3
27.9 31.1 26.3 32.7 38.4 34.2 33.4 28.8
33.5 36.8 30.6 40.2 49.2 44.5 42.0 34.4
Source: World Bank (2007)
recent years. However, this nation’s improvement in growth in recent years has contributed positively to the eradication of poverty. Table 3.4 provides information about the distribution of income in the selected countries of the two regions. In the table, the percentage share of an economy’s consumption has been shown under five quintiles and the Gini ratio of each country has been shown in the last column for recent years. Consumption share of the lowest 20 per cent of the population has been very low in Malaysia, Thailand and the Philippines. Vietnam has shown a slight improvement over the rest of the nations studied. In all the countries except Vietnam, more than one-third of consumption has been enjoyed by the top 10 per cent of the population. The gini concentration ratio presents a worse distribution of income for Malaysia, followed by the Philippines, Thailand and Vietnam. This analysis suggests that Vietnam has been maintaining a relatively equitable growth in consumption in recent years, while the rest of the countries have fallen behind in maintaining the consumption share of the lower income people.
Millennium Development Goals: a tale of two Asias The MDGs were set by the international community led by the United Nations with a Millennium Declaration in 2000. In order to achieve the MDGs, the international community agreed that, for example, poverty will be halved by 2015 in developing nations, taking the 1990 level as a benchmark. On top of the goal of poverty reduction, there are seven more MDGs. Each of these goals, moreover, sets multiple targets to be achieved by 2015. Out of eight development goals, there are 18 targets to be met. The MDGs broadly include the areas covered under social and environmental goals with the partnership between developed and developing countries (World Bank 2006). In this section, an attempt is made to investigate the social goals and targets in some selected nations of Asia. The social goals cover five areas: eradicate extreme poverty, achieve universal primary education, promote gender equality, reduce child mortality and improve maternal health.
36
Introduction
Table 3.5 Eradication of extreme poverty Country
Bangladesh India Pakistan Sri Lanka Malaysia Philippines Thailand Vietnam
Poverty (US$1 a day headcount ratio (%))
Share of consumption to poorest quintile (%)
2002
2005
2005
41.3 — 17.0 5.6 — 15.5 110) and low in Malaysia (250) and moderately high in China, Indonesia, Thailand and the Philippines. Land use in arable category in 2005 was highest in Thailand (27.7 per cent) and lowest in China (11.1 per cent) out of total surface land of these nations. In South Asia, the population has doubled in almost all the countries Table 7.2 Population estimates and land use Country
China Indonesia Philippines Thailand Vietnam India Pakistan Bangladesh Nepal Sri Lanka
Population density (in per sq. km)
Land use
1995 2005
1990
126 101 230 113 201 283 163 833 149 273
140 122 240 126 268 368 202 1,090 190 304
2005
Arable land hectare/100 people
Arable land (% of total)
Arable land hectare/100 people
Arable land (% of total)
8.1 10.3 7.4 25.6 8.2 15.5 15.2 6.1 9.4 4.7
11.1 11.2 18.4 34.2 16.4 54.8 26.6 70.2 16.0 13.5
8.0 10.6 7.1 22.4 8.0 14.8 14.1 5.7 8.9 4.8
11.1 12.7 19.1 27.7 21.3 53.7 27.6 61.9 16.5 14.2
Source: Human Development Report (2004); FAOSTAT: World Bank-World Development Indicators (2004, 2007)
MDGs and the achievements to 2005
77
studied, except Sri Lanka, during the last 30 years. Arable land use in 2005 was highest in Bangladesh (61.9 per cent) and lowest in Sri Lanka (14.2 per cent).
Population distribution Distribution of population by age group and dependency ratio by country are presented in Table 7.3. Recently (2005), in Southeast and East Asia, children in the age group 0–14 years constituted the second largest proportion of the total population of each country. In 1996, this proportion was very high for all the countries. In 2004, this ranged from less than 25 per cent in China and Thailand to above 29 per cent in Vietnam, Indonesia and the Philippines. The high proportion in Vietnam, Indonesia and the Philippines reduced the overall proportion of those in the working age group (15–64 years). The overall figures, however, suggest that the fertility rate in all these countries has declined over the last ten years. The issue of fertility rate is illustrated further in a subsequent section. In South Asia, the number of children below 14 years is highest in Pakistan (38.3 per cent) and lowest in Sri Lanka (24.1 per cent). A reduced fertility rate also helped reduce the population in South Asia. Dependency ratio =
Persons 0–14 + 65 & above Persons 15–64
1000
(7.1)
In Table 7.3, the dependency ratio explains that children (aged 0–14 years) and older people (65 and above) constitute the dependency load for persons in the primary working ages (15–64 years). The dependency ratios provided in Table 7.3 reveal that the Philippines have the highest ratio of dependency of 720 and 660 (per 1,000) respectively in 1996 and in 2005 among the countries studied in Southeast and East Asia. However, dependency has declined for all the countries. Table 7.3 Distribution of population by age and dependence ratio 1996–2005 Country
Age group
Dependence ratio
1996
China Indonesia Philippines Thailand Vietnam India Pakistan Bangladesh Nepal Sri Lanka
2005
0–14
15–64
65+
0–14
15–64
65+
27.2 32.2 38.4 26.2 36.0 42.3 45.5 42.3 — 31.7
66.5 64.0 58.1 68.2 58.5 60.2 51.1 56.8 — 64.2
6.3 3.8 3.5 5.6 5.5 4.0 3.4 0.9 — 4.1
21.4 28.3 35.1 23.8 29.5 32.1 38.3 35.5 39.0 24.1
71.0 66.2 61.0 69.1 65.0 62.7 57.9 60.9 57.3 68.6
7.6 5.5 3.9 7.1 5.4 5.3 3.8 3.6 3.7 7.3
1996
2005
500 560 720 470 710 662 966 762 — 545
400 500 700 400 600 600 800 700 800 500
Sources: US Bureau of the Census, International Data Base, http://www.census.gov/ cgi-bin/ipc/idbagg; Hossain, Islam and Kibria (1999); World Bank (2007)
78
South Asian economic development
Table 7.4 Labour force participation rates, by sector 1980–2004 Country
China Indonesia Philippines Thailand Vietnam India Pakistan Bangladesh Nepal Sri Lanka
1979–81
2004
Agriculture
Other
Agriculture
Other
74 58 52 71 73 62 47 59 — 49
26 42 48 29 27 38 53 41 — 51
65 47 38 55 67 — 50.5 52 — 36
35 53 62 45 33 — 49.5 48 — 64
Sources: FAOSTAT: World Bank-World Development Indicators (2004); World Bank (2007)
In South Asia, dependency reduced in all the countries over the period of 1996–2005. The highest dependency was in Pakistan and Nepal (800 per 1,000) in 2005. Table 7.4 presents the labour force participation rates for the Asian countries studied by sectors between 1979 and 2004. Under ‘other’ category, the figures mainly show combined participation in the industrial and services sectors. The figures for all the countries in 1979–81 suggest that the agricultural sector was the major source of labour force utilization. This picture radically changed for every country in 2004, however, the changes were prominent for Thailand, China, Indonesia and Sri Lanka.
Female labour force participation In recent years, development literature has been flooded with studies on female participation in development in developing countries. In the early 1990s, UN agencies undertook numerous studies on women and their role in future development of developing countries. Women’s participation in a country’s labour force is one of the important indicators which measure the role of women in development. Table 7.5 presents detailed comparative information on female labour force participation for a sample of ten countries of Southeast, East and South Asia over 1990 and 2005. Almost half of the Vietnamese and Thai labour force was made up of women in 2005. In China and the Philippines they constitute more than 40 per cent. In all the countries in East Asia except Thailand, female participation has been increasing since 1990. Thailand seems to be decreasing slightly over the last two decades (by a few percentage points). In South Asia, the female labour force participation is highest in Nepal (40.5 per cent) and lowest in Pakistan (27 per cent). The participation rate in India is marginally higher than in Pakistan. However, like Thailand, Sri Lankan and Bangladesh’s participation rates experienced a drop between 1990 and 2005.
MDGs and the achievements to 2005
79
Table 7.5 Female labour force 1990–2005 Country
China Indonesia Philippines Thailand Vietnam India Pakistan Bangladesh Nepal Sri Lanka
Total labour force (millions)
Female labour force (% of total labour force)
1990
2005
1990
2005
650 75.3 23.4 30.4 31.3 335.1 35.2 46.9 7.1 7.3
776 107 37 36 44 435 56.5 63.9 10.5 8.4
44.8 38.4 36.6 46.6 48.3 29.9 23.3 40.2 37.9 34.8
45 38 40 46 49 28.4 27.0 36.9 40.5 30.4
Sources: http://genderstats.worldbank.org; World Bank (2007)
Asia’s demographic challenges By 2005, Southeast and East Asia’s population reached more than 1.5 billion as compared to 1.2 billion in 1975. World Bank (2004) projections suggest that by 2015, the total population of the region will reach close to 2 billion. It is a somewhat less alarming picture than in the other regions of Asia, as far as the population densities are concerned. In 2005, Vietnam’s population density per square kilometre reached almost 300 persons, while China had 140, Indonesia had 122, the Philippines had 240 and Thailand had 126. By 2015, South Asia’s population will reach 1.7 billion. In terms of density of population in 2005, while Nepal (190 per sq. km), Pakistan (202), Sri Lanka (302) and India (368) have tolerable density, Bangladesh is certainly in a challenging position (1,090 per sq. km). The policymakers are concerned due to the fact that the contraceptive prevalence has not been increasing substantially in the populous nations of the regions. For example, between 1995 and 2005, this in fact declined from 90 to 87 per cent of women aged between 15 and 49 in China. It remained unchanged in Thailand (72 per cent) in the same age group (see Table 7.6). This development certainly would not help in reducing the growth rate of population in the region as predicted by the World Bank. South Asia’s challenges are even greater in controlling population in the future. The contraceptive prevalence rate is very low between the age group 15–49 years. In Sri Lanka only, this is equal to other Southeast and East Asian nations. In terms of reduction in fertility rate, the South Asia region has a major job in catching up with Southeast and East Asia in the future.
Achievements in MDGs in 2000–05 In this section an attempt is made, given the conditions in population growth in Southeast, East and South Asia, to investigate how the countries studied cope
80
South Asian economic development
Table 7.6 Fertility and contraceptive use rates 2000–05 Country
China Indonesia Philippines Thailand Vietnam India Pakistan Bangladesh Nepal Sri Lanka
Total fertility rate (birth per woman)
Contraceptive prevalence (% of women aged 15–49)
1990
2005
1995
2000–05
2.1 3.1 4.3 2.2 3.6 3.8 5.8 4.3 5.1 2.5
1.8 2.3 3.2 1.9 1.8 2.8 4.1 3.0 3.5 1.9
90 55 48 72 75 43 12 46 — 62
87 57 69 72 77 47 28 58 38 70
Sources: http://genderstats.worldbank.org; Global Population Profile (2002), USAID; World Bank (2007); http://www.infoplease.com/ipa/A0004379.html; http://www.census.gov/cgibin/ipc/idbagg
with their commitments in achieving MDGs by 2015. The investigation is carried out by analysing the achievements between 2000 and 2005, the first five years of implementing the MDGs strategy. In terms of eradicating extreme poverty, certainly Southeast and East Asian nations are ahead of South Asia (see Table 7.7). The headcount ratio suggests that more than one-third of the population in Bangladesh and India live with or under US$1 a day. In this regard, there was an improvement in rest of the nations after 1998. The improvement has been strong in all the nations except Indonesia and Thailand (no change) and India (only 2.5 per cent drop). The achievements have been praiseworthy although in South Asia there remains huge poverty in absolute Table 7.7 Eradication of extreme poverty Region
Poverty (US$1 a day headcount ratio (%))
Share of consumption to poorest quintile (%)
1998
2005
2005
East Asia China Indonesia Philippines Thailand Vietnam
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Index
3G mobile telephony 205–6 ‘20:20 initiative’ 55–6 accountability 215 Adams, F.G. 66 adaptation to climate change 156, 161 administrative structures 6–7 adult literacy rate 5, 6, 31, 32; female 41 Agarwala, R. 67 age structure of the population 39–40, 77 agriculture 137–45, 150–1; climate change and 154, 159, 161–2; contribution to GDP 24; Doha Round and trade reform 111–13; growth in food grain production 139–40; growth performance 22–4; India 145, 189–90; labour force 40, 41, 78; possibility of a second ‘Green Revolution’ 143–4; production of export crops and allied products 142–3; transformation 140–2; see also rural development Ahmad, Q.K. 106 Airtel 197 airtime rates 199–200 All India Muslim League 18 allocation criteria 56, 57 APEC 219 Asian Development Bank (ADB) 14, 48, 49, 53; regional review of the economics of climate change 157–8 Asian financial crisis 3, 29–30 assassinations, political 17, 18, 20, 21, 221 Association for Southeast Asian Nations (ASEAN) 52, 129 Athukorela, P. 6, 221 Australasia 117–19 Australian Information Industry Association (AIIA) 172 average revenue per user (ARPU) 197
Awami League 19 Ayub Khan, General 19 Azariadies, C. 53 bailouts 29–30 Bajpai, A.B. 180 Balassa, B. 129–30 Bandaranaike, Solomon 20 Bandaranaike, Srimavo 20 Bangladesh 3, 14, 18, 19; climate change 153–5, 165–70; collapse of population programme 43; commodity trade 114; decentralization of local administration 145–50, 212–13; delivery of education 59–60; dirigiste doctrine 10; formation in 1971 10, 19; export crops and allied products 142, 143; FDI 106; infrastructure development 134–5; political context 17, 221; poverty 155, 164, 170, 220; privatization 95; rural development 145–50; trade opportunity analysis 120–2 Bangladesh Rural Advancement Committee (BRAC) 59–60 basic needs 146 Bauer, P.T. 11 Bay of Bengal 152, 166 Bedi, S.A. 193 Behrman, J.R. 52, 98 Bhagwati, J.N. 11, 64, 92, 104, 131 Bharat Sanchar Nigam Ltd (BSNL) 182, 197 Bharathiya Janata Party (BJP)-led coalition government 179, 180 Bhutan 136 Bhutto, B. 16, 19, 221 Bhutto, Z.A. 19 ‘big-bang’ approach to privatization 94 biological technology 139
Index Birdsall, N. 6 Bolivia 60 Booth, A. 52 Brahmaputra Basin 166 Brahmin bureaucrat model 14 British colonial rule, legacy of 6–9 broadband 196, 202, 203 budget deficits 28–9, 89 budgeting 150 bureaucracy see civil service business process outsourcing (BPO) 171, 174 cadres of political parties 216 Calling Party Pays (CPP) regime 181, 197 Cameron, J. 221 capital goods industries 97 carbon dioxide emissions 159, 160; see also climate change carbon markets 156 cereals 139–40, 144; see also food grains Chamie, J. 220 Chibber, P. 221 child labour 73 child mortality rate 35, 37, 81, 82; see also infant mortality rate China 3; coastal belt 133–4, 135, 160, 162; IT industry 176–7; policies and actions for addressing climate change 158–64 Chowdhury, S. 193 civil service 7; good governance 212, 214–16; merit-based recruitment 51 climate change 152–70; Bangladesh 153–5, 165–70; China’s policies and actions for addressing 158–64; growth, poverty and in South Asia 164–6; recent studies 155–7; regional review of the economics of climate change in Southeast Asia 157–8 coastal regions: China 133–4, 135, 160, 162; climate change in Bangladesh 166, 167 colonial rule, legacy of 6–9 commodity trade 113–14 community participation 60 competitiveness 174 computer hardware industry 97 computing science graduates 178 conditionalities 15 Confucianism 50–2 consumption, share of by the poor 80, 81 contraceptive use rates 42–3, 79, 80 convergence 5
265
corporatism 65, 66 cost efficiency 175 cost-recovery schemes 59 critical mass hypothesis 193, 208, 209, 214 Cronin, F.J. 192 currency depreciation/appreciation 85–6 current account 26, 86, 87, 89 cyclones 154, 167 data reliability 6 data services 206 Davis, I. 66 debt, external 27–8, 87–9 debt–service ratio 27–8, 87–8 decentralization of local administration 145–50, 212, 212–13 Delhi 202, 203 delivery mechanisms 56–7, 58–60 delta flood plain 166, 167 demand for mobile telephony 230, 231 demand model for telecommunications services 174–5 demographics 38–44, 75–9; demographic challenges 42–4, 79; demographic conditions and trends 38–9, 75, 76–9; female labour force participation 41–2, 78–9; population distribution 39–41, 77–8 Department of Telecommunications (DoT) (India) 179, 181, 182, 184 dependency ratio 40, 77–8 dependency theory 11 depreciation of currency 85–6 Deyo, F. 64 Dhaka 154 Dillinger, W. 147 dirigiste doctrine 7, 9–16, 210; demise of 12–13; intellectual roots 11–12; rise and decline in South Asia 13–16 distortion index 67 ‘distortionist’ view 62–3, 63–4, 66 district councils 147, 148, 149, 213 Doha Round 111–13 donor agencies: funds 58; policy reform agenda 14–15 Drazen, A. 53 droughts 167–8 Drysdale, P. 219 Dunning, J. 100–1 Dutt, A.K. 221 earth’s surface temperature rise 159, 167, 168, 169
266
Index
East Asia 66, 133, 134; Japanese FDI 133, 134; soliciting FDI from 103–4; trade with 117–19 ‘East Asian miracle’ 3 ecological footprint 168–70 econometric model of impact of mobile telephony on economic growth 206–8, 229–32 economic growth 22–30; climate change, poverty and 164–6; domestic savings and investment 24–5; export growth and expansion 25–6; growth performance 22–4; impact of mobile telephony on 196–8, 206–8, 213–14, 229–32; impact of telecommunications 191–5; indebtedness 27–8; indicators of macroeconomic balance 28–30; integration with the global economy 26–7 economic integration: defining 129–30; global 26–7, 109–13; regional see regional integration economic reforms 91–108, 211; FDI 98–108, 108; industrial performance 96–7; infrastructure bottlenecks 97; privatization 94–6, 108; telecommunications in India 178–80; trade liberalization 91–4, 108 ecosystems 159, 162 education: development performance 31, 32, 33, 34; primary education completion rates 31, 32, 35, 36–7, 81; returns to 57; school enrolment rates 6; screening hypothesis 49; share of GDP 55; vocational school fallacy 56, 57–8; see also human resources endogenous growth theories 48 energy conservation measures 160, 161 engineering graduates 178 Enos, J. 102 environmental protection 211 Ershad, H.M. 72 European Union (EU) 117–19 exchange rate 28–9; policy 29, 84–6 exit/voice model 65 export-driven industrialization 91–4, 108 export pessimism 11–12, 98 export subsidies 112–13 exports 86, 87; agricultural export crops and allied products 142–3; Bangladesh 120–3; destinations 120, 121, 123, 125, 126, 127–9; growth in 25–6, 115–16; India 123, 124; Pakistan 125, 126; products 120–2, 123, 124, 125,
126, 128, 129; Sri Lanka 127–9 external actors 14–15 external debt 27–8, 87–9 external sector 86–9 factor endowments 99, 101 famines 9 Fay, M. 147 Fei, J. 137–8 female labour force participation 41–2, 78–9 fertility rates 31, 32, 79, 80 fertilizer technology 138, 143–4 field-level population workers 43 Fields, G. 13 financial management 150 financial market interventions 9, 12–13 financial repression 13 financing human development 56, 58–60 firm-specific advantages (FSAs) 100–1 fiscal balance 28–9, 89 fiscal conservatism 7 fiscal crisis 15–16 fiscal restructuring 59 Fishlow, A. 15 fixed line telephony 193, 194, 195–6, 202; prices 207; see also telecommunications flying geese model 99–100, 104 food grains 139–42, 143–4, 150–1; deficits to surpluses 140–2; demand and supply trends and projection for India 145; downward trend in production 144; growth in production 139–40; see also agriculture food processing sector 96–7 food self-sufficiency 141, 142–3 foreign direct investment (FDI) 26, 27, 98–108, 108; coastal regions 134–5; developing an appropriate policy framework 101–3; global overview 98–9; ‘look east’ policy as component of FDI policy 103–4; recent developments and policy initiatives 104–8; theoretical perspectives 99–101 foreign reserves 26, 27 forests 159, 162 Foster, P.J. 58 free trade area (FTA) 130–1, 132, 136 Freeman, R.B. 66, 71 freshwater resources 156–7 game theory 65–6 Gandhi, I. 18
Index Gandhi, R. 18, 20 Ganges Basin 166 Garnaut, R. 219 GDP: growth 22–4, 83–4, 110; per capita 4, 5–6, 189; per capita and telecommunications 191–2, 201, 202; sectoral shares 24 gender discrimination 73 gender equality 35, 36–7, 81 General Agreement on Tariffs and Trade (GATT) 111 general ITES 171 geographical proximity 218 Gini ratio 35 global economy, integration with 26–7, 109–13 global financial crisis 21, 29–30, 109 global warming see climate change ‘go-slow and institutional’ approach to privatization 94 good governance see governance Gore, A. 152 governance 11, 210–22; achieving MDGs and population control for growth 212, 219–20; decentralization 212, 212–13; good governance in the era of information revolution 220–2; mechanisms for facilitating good governance 211–20; principles of good governance 211; private investment-led information revolution 213–14; role of the bureaucracy 212, 214–16; trade liberalization and non-discriminatory regionalism 212, 217–19; transferring non-core functions to the private sector 212, 216–17 graduates 178 Greater East Asia Co-Prosperity Sphere (GEACS) 104 ‘Green Revolution’ 139, 150; possibility of a second ‘Green Revolution’ 143–4 Grimsson, President 153 Grossman, G.M. 48 Gupta, D. 204 Haq, M. 218 Hardy, A. 191–2 Haryana 202, 203 Hasina, Sheikh 17, 147 health: child mortality rate 35, 37, 81, 82; development performance 31, 32, 33; infant mortality rate 31, 32; life expectancy 5, 31, 32, 54–5; maternal 35, 37, 81, 82; share of GDP 55
267
health and safety standards 72–3 Helpman, E. 48 high penetration states 230–2 high-yield seed technology 138, 143–4 Himalaya council 153 Hollands, M. 172 Hong Kong 3 Hossain, M.M. 171, 212 Hossain, M.S. 153, 154 human capital theory 48–9 human development 31–7; education 31, 32, 33, 34; health 31, 32, 33; vs human resource development 49–50; indicators 4, 5, 31–2; MDGs 35–7; poverty and income distribution 34–5 human development compact 55–6 human resources 47–61; allocation criteria and vocational school fallacy 56, 57–8; cross-country evidence of role in economic development 52–5; financing and delivery mechanisms 56, 58–60; human capital theory and new growth theories 48–9; human development vs human resource development 49–50; policy lessons 55–60; socio-cultural determinants of human capital formation 50–2 ideas 9–16 ideology 9–16 import-substituting industrialization (ISI) 9, 11, 12 imports 25, 26, 86, 87, 115 incentives to attract FDI 101–3 income distribution 35 income inequality 54–5 income per capita 54–5 indebtedness, external 27–8, 87–9 India 3, 5, 14, 189–209; climate change 165; commodity trade 114; competitive edge in IT 176–7; development plan of 1952 12; economic and regulatory reform in telecommunications 178–86; export crops and allied products 142, 143; failure of fertility control policies 43; FDI 105–6, 106–7; food grain demand and supply trends, and projection 145; impact of mobile telephony on economic growth 206–8, 213–14, 229–32; industrialization 7–8; knowledge superpower 177–8; mobile phone operators 197, 199, 235; most preferred destination for IT 172–3; National Telecom Policy 1994 178–9,
268
Index
India (cont.): 180–1, 183–4, 190, 197; New Telecom Policy 1999 180–2, 183–5; Partition 8, 18; policy recommendations for telecommunications 208; political context 17–18, 221; poverty 18, 164, 170, 220; private investment-led information revolution 213–14; privatization 95–6; reasons for current IT boom 189–91; rise of the middle class 178; state boundaries and mobile licences 233–4; support for Bangladesh 10; and Tamil separatism in Sri Lanka 20; telecommunications across states 195–206; three presidencies of British India 132, 133; trade opportunity analysis 122–5 Indian Congress Party 18 Indian Planning Commission 12 Indonesia 3 industrialization 7–8; export-driven 91–4, 108; import-substituting 9, 11, 12; inward-oriented 217–18 industry: contribution to GDP 24; growth performance 22–4; performance 96–7 infant mortality rate 31, 32; see also child mortality rate inflation 28–9, 83–4 information revolution: good governance in the era of 220–2; private investmentled 213–14 information technology (IT) 171–86; India 176–8, 189–91; most preferred destination 172–6; offshore outsourcing vs outsourcing destination 171–2; see also telecommunications infrastructure 211; bottlenecks 97; development 106–7, 134–5; India 189, 190; telecommunications in India 203, 204, 205–6 initial conditions 4–9 ‘institutionalist’ view 62–3, 64–6 integrated rural development (IRD) 146 integration, economic see economic integration Intergovernmental Panel on Climate Change (IPCC) 152, 163; sixth technical paper 156–7 internalization advantages 100–1 international co-operation on climate change 156, 163, 164 International Labour Organization (ILO) 62–3; ratification of ILO conventions 68
International Monetary Fund (IMF) 15, 30, 91, 94 internet 33, 34, 196, 202, 203, 206; kiosks 205 inter-regional trade 117–19 interventionist FDI policy 101–3 intra-regional trade 116–17, 218 investment 24–5, 54–5; private investment-led information revolution 213–14 investor-friendly packages 101–3 inward-oriented industrialization 217–18 Iqbal, M. 18 Ireland 172–3 irrigation technology 138, 143–4 IT-enabled services (ITES) 171, 174 Jamuna bridge 134 Japan 100; colonial rule 8, 9; source of FDI 104, 133, 134 Jayasuriya, S. 6, 221 Jayewardene, J.R. 20 Jensen, R. 194 Jinnah, M.A. 18 job security regulations 63 Kashmir 221 Kathuria, R. 171 Kenya 60 Kerala 202, 203 Kim, K.K. 221 knowledge superpower 177–8 Kohli, A. 221 Korea, South 3, 4–6; Economic Planning Board 12; industrialization 8; labour markets 69; recovery from recession 30 ‘Korean model’ 98 Korean War 8 Krueger, A. 11, 15, 91–2, 214 Kumaranatunga, C.B. 20 Kyoto Protocol 158, 163 labour force participation rates 40, 41, 78; female 41–2, 78–9 labour market institutions 62–74; ‘distortionist’ view 62–3, 63–4, 66; ‘institutionalist’ view 62–3, 64–6; and policies 66–73 labour market interventions 9, 13 labour standards 72–3 labour subordination hypothesis 64 Lal, D. 15, 214 land use 39, 76–7 Latin America 66
Index law, foundation of 211 Lewis, W.A. 5, 137 Liaquat Ali Khan 18 life expectancy 5, 31, 32, 54–5 line ministries 214 Little, I. 7, 12 livestock breeding 159, 162 local administration, decentralization of 145–50, 212, 212–13 Local Government Reform Commission 146 location-specific advantages 100–1 ‘Look East’ policy 103–4 low penetration states 230–2 Lucas, R.E., Jr 48 MacNamara, R. 146 macroeconomic management 7, 83–90, 211; in the context of trade dependence and external debt 89; exchange rate policy 84–6; external sector 86–9; indicators of macroeconomic balance 28–30; money supply, inflation and output growth 83–4 Mahalanobis, P.C. 12 Mahanagar Telephone Nigam Ltd (MTNL) 182, 184, 197 Mahathir Mohammad 30 Malaysia 3, 30 manufactured products 93 manufacturing value added (MVA) 96–7 market access 112 market failure 11–12, 65 market power 173 ‘marketization’ approach to privatization 94 Mascarenhas, A. 221 maternal mortality ratio 35, 37, 81, 82 mechanical technology 139 Meghna Basin 166 merchandise trade 27, 115–16; Bangladesh 122; India 124, 125; Pakistan 125, 127; Sri Lanka 129 merit-based recruitment 51 Metcalf, D. 58 Metcalfe, I. 167 micro pre-paid telephony 197, 198 middle class 178 Middle East 117–19 military coups 17, 18–19, 21 Millennium Development Goals (MDGs) 35–7, 75–82, 156; achievements 2000–2005 79–81, 82; demographic conditions and trends 75, 76–9; good governance 212, 219–20
269
Mingat, A. 58 minimum wage legislation 63 mobile telephony 181, 184, 191–209, 213–14; across Indian states 195–206; coverage rates 199, 200; econometric model of impact on growth 206–8, 229–32; impact on economic growth 196–8, 206–8, 213–14, 229–32; penetration rates 199; policy recommendations 208; service providers 197, 199, 235; state boundaries and mobile licences 233–4 money supply 83–4 monsoons 167, 169 most preferred destination (MPD) 172–6; conceptual framework 174; cost efficiency 175; measuring productivity 176; measurement of 173–4; methodology 174; Ramsey pricing 174–5 Mumbai 202, 203, 221 Musharraf, General P. 19 Muslim League 19 Naidu, C. 180 National Bureau of Economic Research (NBER) (US) 14 National Coordination Committee on Climate Change (NCCCC) (China) 163 National Development and Reform Commission (NDRC) (China) 163 National eGovernance Programme (NeGP) (India) 205 National Leading Group to Address Climate Change (China) 163 Nehru, J. 18 Nepal 136 network effects 192, 193, 207–8, 230–2 New, M. 153 new growth theories 48–9 New Scientist 177–8 Newaz Sharif 19 Newly Industrialized Economies (NIEs) 53–4 nominal tariffs 93 non-core functions, transferring to private sector 212, 216–17 non-governmental organizations (NGOs) 59, 146, 151 North America 117–19 Norton, S.W. 192 Official Development Assistance (ODA) 88–9, 105
270
Index
offshore outsourcing 171–2 OFTEL 173 O’Malley, W. 50 open regionalism 131, 219 Organization for Economic Co-operation and Development (OECD) 14 Otani, I. 53 output see GDP outsourcing destination 171–2; MPD 172–6 ownership advantages 100–1 Pakistan 3, 14, 164, 220; climate change 165; commodity trade 115; export crops and allied products 142, 143; FDI 106, 107–8; political context 18–19, 221; population control 43–4; privatization 95, 96; trade opportunity analysis 125–7 Pakistan Academy for Rural Development 145 Pakistan People’s Party 19 patronage regimes 67 Pencavel, J. 65, 67–8 Philippines 52, 215 planning 9, 11, 12 policy 220; China’s approach to climate change 161–4; FDI policy 101–8; human resources 55–60; ideas, ideology and evolution of South Asian economies 9–16; labour market institutions and 66–73; recommendations for telecommunications in India 208; role of the state in maintaining a nondistortionary policy environment 211; standard prescriptions for reform 210 political assassinations 17, 18, 20, 21, 221 political context 16–21, 221 political economy 66 political parties 18, 19; cadres of 216 politicization of trade unions 72 population 38, 75–9; control 43–4, 79, 212, 219–20; density 39, 76–7, 79; distribution 39–41, 77–8; growth 38–9, 43, 75, 76, 220 post-Confucianism 50–2 post-independence era 3–21; 1950s and 1960s 4–6; dirigiste doctrine 7, 9–16, 210; legacy of British colonial rule 6–9; political history 16–21 poverty 21; Bangladesh 155, 164, 170, 220; changes in 34–5; climate change and 164–6; India 18, 164, 170, 220;
reduction as MDG 35, 36, 37, 80–1, 81–2, 219–20 Power, J.H. 12 Prebisch, R. 12 Premadasa, R. 20 prices: mobile telephony 196–7; Ramsey pricing 174–5 primary education completion rates 31, 32; MDG 35, 36–7, 81 primary products 93 private sector: collaboration with public sector 59–60; telecommunications in India 179, 183–4, 197, 213–14; transferring non-core functions to 212, 216–17 privatization 94–6, 108; and FDI 99; and governance 212, 216–17; trends 95–6 producer support 112–13 product cycle theory 99–100 product market imperfections 70–1 productivity: agricultural 140; measurement and MPD 176 Psacharopoulos, G. 57 public awareness 162–3 public sector–private sector collaboration 59–60 public service 216 Public Switched Telephone Network (PSTN) infrastructure 203 Punjab 202, 203 quantitative restrictions (QRs) 93–4 Quibria, G. 34 Rahman, Sheikh Mujibur 17, 19 Ramsey pricing 174–5 Ranis, G. 137–8 reform cycles 16 regional integration 129–36; good governance 212, 217–19 regional trade 115–19; inter-regional 117–19; intra-regional 116–17, 218 regulation 9; FDI policy 101–3, 106, 107; labour market 62–74; telecommunications in India 180–5, 186 reliability of data 6 Reliance Infocom 178, 197 religion 16 remittances 114, 115 rice 139, 154 riverbank erosion 154 road transit facilities 134–6 Röller, L.H. 192–3
Index Romer, P. 48, 53 rural development 151; Bangladesh 145–50 rural teledensity 203–5 Sachs, J. 216 safe drinking water 32, 33 salinity 154 saving ratio 5 savings 24–5, 83 school enrolment rates 6 Schultz, T.W. 138 Schumpeter, J. 137 science graduates 178 Scitovsky, T. 12 Scott, M. 12 screening hypothesis 49 sea level rise 154, 166, 167, 169 sectoral growth rates 22–4 sectoral shares of GDP 24 Seed Project (China) 162 Selvarajah, K. 180, 183 Sen, A.K. 17–18 Senanayake, D.S. 20 Senanayake, Dadley 20 Sengenberger, W. 65 Sengupta, J.K. 53–4 services: contribution to GDP 24; growth performance 22–4 services trade 27, 114–15; Bangladesh 122; India 124, 125; Pakistan 125, 127; Sri Lanka 129 Shundor Bon 166 significant market power (SMP) approach 173 Singapore 3 ‘Singapore model’ 98 Singh, M. 18 Smith, A. 211 social services 211 socio-cultural approach to human capital formation 50–2 Song, J.S.-H. 214 South Asian Association for Regional Cooperation (SAARC) 130–6, 218, 219 South Asian Free Trade Area (SAFTA) 130–1, 132, 136 South Asian Preferential Trade Agreements (SAPTA) 130, 132–3, 218–19 Southeast Asia: comparative analysis of demographic dynamics 38–44; comparative analysis of economic growth 22–30; comparative analysis of human development 31–7
271
Soviet Union 10 specialized ITES 171 speed of integration 110–11 Sri Lanka 3, 6, 14, 164, 220; commodity trade 115; export crops and allied products 142–3; FDI 105; labour market 67; political context 20, 221; population control 44; privatization 95; trade opportunity analysis 127–9 Srinivasan, T.N. 131 Standing, G. 64–5, 71–2 state: core functions 211; transferring non-core functions to private sector 212, 216–17 state-owned enterprises (SOEs) 9, 10, 216–17 Stern, N. 49, 152 Stern Report 152–3 strategic ministries 214 structural adjustment programmes (SAP) 15, 66, 68, 91, 94 sub-district councils 147, 148–50, 213 sub-regional groups 132–3, 133–6 subsidies: agricultural 112–13; to SOEs 216–17 surplus labour model of growth 137–8 Taiwan 3; labour markets 69 Taliban 19, 44, 221 Tallman, E.W. 54 Tamil Nadu 202, 203 Tamil separatism 20, 221 Tan, A.S. 58 tariff rates 8, 13, 92–3 technology, agricultural 138–9, 142; possibility of a second ‘Green Revolution’ 143–4 technology transfer 102–3 Telecom Dispute Settlement and Appellate Tribunal (TDSAT) (India) 182 Telecom Regulatory Authority of India (TRAI) 180–2, 182–3, 186, 196 Telecom Regulatory Authority of India Act (TRAI Act) 1997 181 telecommunications 189–209; across states in India 195–206; economic and regulatory reform in India 178–86; impact on economic growth 191–5, 213–14; mobile telephony see mobile telephony; policy recommendations 208; private investment-led information revolution 213–14 temperature increase 159, 167, 168, 169
272
Index
Termination of Employment Workmen Act (TEWA) (Sri Lanka) 67 terrorism 16, 221 textile industry 97 Thailand 3, 52 Thomson, W.R. 218 threshold of telecom density 193, 208, 209, 214 Torero, M. 193 trade 26–7, 109–36; between regions 117–19; composition and magnitude 113–15; Doha Round 111–13; growth 115–16; integration trends 110; intraregional 116–17, 218; prospects of regional integration 129–32; SAARC 130–6, 218, 219; SAPTA 130, 132–3, 218–19; trade opportunity analysis by country 120–9; see also exports, imports trade balance 86–7; Bangladesh 120; India 122; Pakistan 125; Sri Lanka 127 trade creation 219 trade diversion 219 trade liberalization 13, 91–4, 108, 131–2; good governance 212, 217–19 trade theory, and FDI 99 trade unions 63, 65, 71–2; control/suppression 71; union densities 69 TRAI (Amendment) Act 2000 181, 182–3 transit facilities 134–6 translog cost function 175 transnational corporations (TNCs) 98; see also foreign direct investment (FDI) transparency 215 union councils 147, 148, 149 union densities 69 United Nations Conference on Trade and Development (UNCTAD) 136 United Nations Development Programme (UNDP) 31, 49–50, 54–5, 104–5; human development compact 55–6; Human Development Report 2007/2008 155
United Nations Framework Convention on Climate Change (UNFCCC) 158, 163 United States (US): convergence to US living standards 5; USAID 14, 43–4 Universal Access Service Licence (UASL) 197 universal service 183, 184 Universal Service Obligation Funds (USOF) 205, 206 Universal Service Obligations (USO) guidelines 184 upazila parishads (sub-district councils) 147, 148–50, 213 urban teledensity 203–5 Uruguay Round 111 Videsh Sanchar Nigam Ltd (VSNL) 182 Villaneuva, D. 53 vocational school fallacy 56, 57–8 Vodafone 197 voice/exit model 65 vulnerable, protecting the 211 Wackernagel, M. 168 wages: behaviour of real wages 70; minimum wage legislation 63; union wage differentials 69 water: freshwater resources 156–7; impact of climate change in China 159–60, 162; safe drinking water 32, 33 Waverman, L. 192–3, 193–4 World Bank 14–15, 62–3, 72, 91, 94, 130, 211; impact of climate change on South Asia’s poor 164–5 World Development Report 212 World Trade Organization (WTO) 111, 219; Doha Round 111–13 Yahya Khan, General 19 Zardari, A.A. 19 Zhan, X.J. 102 Zia-ul-Haq, General 19 zila parishads (district councils) 147, 148, 149, 213