Inthis paper, the theory of growth is being evaluated. The examplechosen for the sake of this discussion will be Bangladesh. Bangladeshis a Country that was just recently underdeveloped, but now isconsidered among one of the developing nations which has madesignificant economic progress. Using data obtained from World Bankwebsite, a relationship between capital investment and GDP growth hasbeen established
TheCountry I have chosen: Bangladesh
Therewas a growth in East Pakistan’s Economy in the 1960s by a leveragerate of about 4 percent. During the Liberation War of 1971, about afifth of the Economy was destroyed, and this is what caused sloweconomic growth in the two decades that followed. It was only in 1990that the Economy started showing some accelerated growth. If the warhad not occurred, the GDP of Bangladesh would have been 10 percenthigher by the year 2009. Moreover, if there was no acceleration ingrowth from 1990, the GDP of Bangladesh would have been 29 percentlower by 2009 (Ahmed,Shamim, and Mortaza 2010).
Graphof the relevant data – data available in accompanying excel sheet.
Anexplanation of how investment rates in physical and human capital arerelated to economic growth and development in general, according tothe growth theory learned in class.
Growththeory suggests that investment in capital – physical and human –leads to overall growth of the country. The GDP per capita is animportant measure of this growth. From the graph above, a few thingsbecome clear.
Bangladesh GDP has increased significantly in the last six decades, from 253 in the 1960s to well above 600 in the 2010s.
The growth was slow till 2005, and then increased. This coincides with the increase in school enrolment.
The same pattern is observed with Gross capital formation. Increase in gross capital formation has led to increase in GDP.
Thefollowing graphs will illustrate this inference. I am highlightingthe data between the years 2005 and 2011. I could have expanded thedata to include more years but school enrollment data isunfortunately not available.
Now,let us look at the same graph but focus on the years 1970 to 1990.
Fromthe two graphs, both comparing the same set of statistics, one thingbecomes apparent. During the time period when Bangladesh was spendingvery little on human capital development, the GDP growth was anythingbut growing. At least on a couple of occasions, it showed negativegrowth. When Bangladesh increased the amount of money, it wasspending on human capital development, the GDP has risen and showssignificant growth rate.
Thisis in line with the learnings in the class. When human capital isdeveloped, it will show results in improved GDP as well.
Adiscussion of how well the growth theory learned in class fits thespecific country being analyzed.
Thefirst graph indicates that GDP has been constantly been rising from1991. After suffering majorly during the Liberation War and itsaftermath that was a slowdown in growth, Bangladesh economy hasaccelerated ever since. We can also observe that Economic growth hasbecome less volatile. Bangladesh has invested very heavily on bothhuman and physical capital.
Bangladeshmade considerable efforts in the early 1990s in stabilizing itseconomy after the two -decade downfall. These efforts resulted inlower inflation levels and a growth in annual real GDP, primarilyattributable to the export of readily made garments. One of the mosteminent features of Bangladesh trade that the government gaveemphasis on was on textiles and clothing (Rahmanand Matiur142). These two dominated the exports, with the country in returngetting foreign exchange. The combined share of textiles andcompleted garments grew from 70.4 percent to 83.5 percent within aperiod of six years (1992-1998).
Thegovernment of Bangladesh has also invested heavily in Agriculture. Upuntil now Agriculture accounts for 30 percent of the GDP, and itemploys 63 percent of the total labor force (Alam,Gazi Mahabubul, et al 1340).Completed garment manufacturing sector and services, on the otherhand, account for 9 percent and 61 percent of GDP respectively. Thesetwo sectors have been the main sources of economic growth making usto understand further how the Growth Theory has been applied inBangladesh.
Itis very clear from the examples stated above that Growth Theory fitsperfectly in this Country. There was significant growth in the GDP asthe government saw it necessary to invest in both human and physicalcapital. Bangladesh would get income from the sale of both finishedand raw materials and, therefore, contributing to an increase in theGross Domestic Product.
Forextra consideration: Is there another variable, from outside thetheory learned in class that correlates better with growth in yourcountry? If so, show it on the graph, and discuss why this variablemay correlate better with growth in this case.
Anextra variable that I wished to include in the discussions isElectricity Production.
Nowcomparing this with the GDP growth from the earlier growth
Lookingat these two graphs, it looks like energy generation is much moreclosely aligned with growth than the education factor. Powerproduction is also a more direct factor because human capital has adelayed effect on it (Mozumder,Pallab, and Alcha 397).
Forinstance, if a government spends money on a child’s education, itwould be years before this investment begins to start paying off.However, energy generation is anentirelydifferent story. Further, electricity is one of those energy typesthat have to be consumed as it is generated. If there is moreelectricity being generated, that means, there are more industriesand households that are consuming that electricity. Someone is payingfor this increased consumption which in the bigger picture willcontribute to the overall GDP growth.
Allgraph images retrieved from http://data.worldbank.org/.
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