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close this bookDeveloping the non-farm Sector in Bangladesh: Lessons from other Asian Countries (WB, 1996, 116 p.)
close this folderWhat drives growth?
View the document(introduction...)
View the documentGross domestic savings (GDS) (as a percentage of GDP).
View the documentGross domestic investment
View the documentForeign direct investment
View the documentPublic finances
View the documentHuman capital
View the documentHealth
View the documentMessage from indicators

(introduction...)

From a macroeconomic standpoint the pace at which a country grows depends on the accumulation of physical and human capital as well as advances in technology motivated by the accretion of capital in its different forms. This process can be captured by a number of variables, which, individually, have limited explanatory power but, collectively, can illuminate the question of growth in sufficient depth. These variables can be grouped according to whether they pertain to physical capital or human capital. Those that reflect the level of physical capital include:

Gross domestic savings (GDS) (as a percentage of GDP).

· Gross domestic investment (GDI) (as a percentage of GDP). Foreign direct investment (FDI) (as a percentage of GDP) Aggregate net resource flows from overseas (in US dollars per capita). Revenue availability to the government (as a percentage of GDP) The indicators of human capital are: Illiteracy level of men and women. Gross enrollment ratio for primary schooling. Gross enrollment ratio for secondary schooling.

Percentage of the population with access to health care.

Number of people per physician. Gross Domestic Savings Savings affect not just current growth and future development prospects but also private expectations and the government's capacity to mobilize resources. According to this index, Bangladesh was near the bottom of the sample of Asian and African countries during 1975-1992 (table 5). In 1992 it was ahead of only Gambia, Ghana, and Malawi with a ratio of GDS to GDP of only six percent. The only encouraging aspect of savings behavior in Bangladesh is that the trend is positive. GDS is inching upward-it tripled between 1980 and 1992 with most of the increase occurring in the 1990s. Data for 1993 1994 show that savings have remained between 6 and 7 percent.

Gross domestic investment

Inevitably, savings performance has a bearing on the volume of investment: gross domestic investment in Bangladesh (as a ratio of GDP) was just 6 percent in 1975, not even half that of the next lowest country in the sample-Myanmar (table 6). Investment has since risen to 12 percent, which is still very unsatisfactory-far short of investment rates in the successful East Asian economies. For instance, GDI in Thailand was 26 percent in 1970 (it rose to 40 percent in 1992), and the Republic of Korea invested 21 percent on average during 1965-70

Foreign direct investment

FDI is both a source of capital and an index of a country's economic environment, as perceived by foreigners or nationals holding investable assets overseas. Of the countries in the sample, Bangladesh attracted the least amount of FDI as a percentage GDP in 1985 (0.008) and although the flow had risen in the early 1990s, it was still only a quarter of that of India-the next highest country on the list. Compared with Bangladesh's ratio of 0.04 in 1992, Sri Lanka had reached 1.2 and Malaysia 7.7 (table 7).

The picture looks a shade brighter when the focus shifts to aggregate net resource flows, which include development assistance and other grants. On average, Bangladesh has fared better than other highly populous countries during 1980-92. Its per capita flows of US $10.5 in 1985 and nearly US $15.0 in 1991 put it well ahead of China and India, and slightly higher than Pakistan. But, by 1992 both China and Pakistan had overtaken Bangladesh-Pakistan by a fairly wide margin following the surge in capital flows drawn by a widening of investment opportunities brought about by reform (table 8).

Public finances

A weak revenue base is a symptom of the absence of development and the limited administrative capacity of the state. It also directly constrains the government's developmental activity and its contribution to domestic savings. Not surprisingly, Bangladesh has an unusually low revenue-to-GDP ratio, below that of other low-income African countries including Myanmar (table 9). The share of revenues has been rising since the mid- 1980s, but slowly. The ratio of 9.6 percent achieved in 1991 was below the 14.3 percent achieved by India, and about half that of Pakistan.

Each of these variables adds to the story of resource availability in Bangladesh. Undoubtedly, the country's low per capita income has stymied capital accumulation. Still Bangladesh has done much worse than other low-income countries in the region and in Africa. Despite having an abundance of cheap labor, it has attracted little foreign capital. And despite the attempts made by the government, aided by the donor community, the government's capacity to increase revenues has remained weak.

Human capital

Building human capital has also proven to be a difficult process. Bangladesh started out with very high rates of illiteracy -- close to 70 percent of the population was unable to read and write. The percentage fell during the 1 980s, but slowly. In 1990 two-thirds of adults were still illiterate. By comparison, illiteracy in China fell from 35 percent to 27 percent over the same period, and in Indonesia it dropped by 10 percentage points-to 23 percent during the 1980s. Of the countries (table 10) in our sample, the high illiteracy rate in Bangladesh is matched by only that of Pakistan, and India follows a distant second. Predictably, Bangladeshi women have lagged much farther behind the men, maintaining illiteracy rates of 78 percent in l 990 and showing very little improvement since 1985.

In 1980 gross enrollment in primary schools was 62 percent compared with 90 to 1 10 percent in most of the other sample countries (table II ). And this disparity began to change only in the late 1980s-enrollments rose to 75 percent in 1988 and to 78 percent in 1990. Statistics for 1993, which include the number of girls attending traditional religious schools, show an enrollment ratio of 116 percent. But although attendance is increasing, these figures might be biased, and they are partially vitiated by the high dropout rate. Only 43 percent of those entering grade I complete the primary school cycle, and the functional skills of graduates are extremely uneven. Low enrollment and high dropout rates are compounded by the quality of education provided. Because of ill-trained (or absent) teachers, a shortage of books and teaching facilities and crowded classes, less than 10 percent of the overall cohort have the desired level of functional skills.

Enrollment in secondary schools remained relatively constant throughout the 1980s. At the beginning of the decade 18 percent of the relevant age cohort were enrolled. By 1990 this figure was estimated to be 19 percent (table 12). Again, Bangladesh compares unfavorably with other countries. Malawi at 4 percent is the lowest in the sample. Pakistan, Zaire, Myanmar and Zambia have similar ratios. But East and South Asian economies, by and large, have much higher enrollment numbers and are thus far ahead of Bangladesh in creating an educated workforce.

Health

An important determinant of the quality of the labor force is access to health services. But this variable is not easy to measure and the data are often unreliable or at best indicative. Statistics on the population with access to health services in Bangladesh suggests that the ratio declined sharply between 1980 and 1988 to just 38 percent before rebounding to 74 percent in 1991 (table 13). In comparison, access in Pakistan rose substantially to 85 percent. Although the absolute percentages probably contain a fair amount of noise, medical services are certainly scarce in Bangladesh. Still, it is difficult to believe that Bangladesh is much worse off then Zambia and Zaire in this respect. Looking at the population per physician balances the picture (table 14). With a ratio of close to 1:7000 between 1986 and 90, Bangladesh is on par with Indonesia and Sri Lanka. Data on health expenditures also points to substantial improvement between 1983 and 1993 although as a percent of GDP it is still modest. The rural population in Bangladesh probably enjoys the same access as that in Indonesia, but in Sri Lanka medical services in smaller towns are better developed.

Message from indicators

The brief comparative review of factor availability in Bangladesh enables us to classify Bangladesh within the spectrum of low-and-middle income countries and offers clues as to why Bangladesh is unable to improve on a 4 percent GDP growth rate. The paucity of physical and human capital, the limited effort made to strengthen the resource base and the modest gains in factor productivity also suggests that achieving and sustaining economic growth would require innovative strategies that extract the maximum developmental benefit from the existing endowment and lay the groundwork for augmenting that endowment.