วันพุธที่ 18 มีนาคม พ.ศ. 2558

Poverty and Prosperity between Pakistan and Bangladesh



Wannaphong   Durongkaveroj
Department of Development Economics, Faculty of Economics
Ramkhamhaeng  University, Bangkok, Thailand
(E-mail Address: Wannaphongd@gmail.com)

After partition, the living standard of Bangladesh, overall, seems to be better off. According to the World Bank, in 1990, Gross Domestic Product (GDP) measured by PPP (Current international $) of Bangladesh was around 74.26 billion while of Pakistan was around 213.09 billion. The economy of Pakistan was bigger than Bangladesh around 2.87 times. By ten years later, namely 2000, the gap of national income between Pakistan and Bangladesh got closer to 2.64 times revealing the more increasing rate in economic growth of Bangladesh. From 1990 to 2000, GDP grew around 95.77 and 80.30 for Bangladesh and Pakistan, respectively. In 2013, the gap got smaller to 2.13 times. Bangladesh’s output was at 400.48 billion while 855.87 billion for Pakistan. GDP of Bangladesh grew over 439.31 percent over the last 23 years which relatively bigger than Pakistan enjoyed the economic growth merely for 301.63 percent. For Compound Annual Growth Rate (CAGR), CAGR for Bangladesh over the past 23 years is 7.60 percent while for Pakistan is only 6.23 percent. Another important thing is that the economy of Bangladesh and Pakistan did not receive the critical impacts from the 2008 Hamburger Crisis which almost developing countries around the world experienced with a reduction in its GDP[1]. Moreover, unlike many countries in Asia, both countries did not have any severe economic crisis in the last 25 years even though International Monetary Fund (IMF) has ever warned the financial risk in Pakistan in 2013.
Source: Compiled by author and obtained the data from the World Bank
Notes: B POV1.25 and B POV2 stands for poverty headcount ratio of Bangladesh at $1.25 and $2 a day while
P POV1.25 and P POV2 are for Pakistan. B POVN and P POVN stands for poverty headcount ratio at Bangladesh and Pakistan national poverty line, respectively. B GDP denotes Bangladesh’s GDP at PPP while P GDP is for Pakistan.
According to the figure above, it represents the possible relationship between GDP and poverty. The blue line denotes for Pakistan’s GDP while the brown line for Bangladesh’s GDP. To analyze poverty in both countries, the three poverty indicators including poverty ratio at $1.25, $2, and national poverty are shown. 

For the first one, $1.25 poverty line, the yellow triangle represents Pakistan’s poverty rate and the yellow square represents Bangladesh’s poverty rate. Unfortunately, the data from the World Bank is imperfect because they are issued in the different year. However, it is useful for policy implementation. In 1991, 64.71 percent of population in Pakistan lived below $1.25 poverty line which means that more than they spent money for living per day less than $1.25. For Bangladesh, in 1992, the poverty rate was at 70.22 percent of its population. As you seen, the rate of both countries is likely to indifferent because almost one third of its population experienced with the destitute. However, the gap got bigger after that. In 1999, poverty rate in Pakistan decreased to 29.05 percent of its population while the poverty rate in Bangladesh, in 2000, was still relatively higher – around 59 percent of its population lived under $1.25 poverty line. And for the latest information, Poverty in Pakistan has dramatically reduced from 64.71 percent of its population in 1991 to only 12.74 percent of its population in 2011. Nevertheless, the process in eradicating poverty was slower
in Bangladesh which poverty rate was still high in 2010 around 43.25 percent of its population. Thus, the first implementation for this paper is that “Even though a rate of economic growth becomes bigger, nation may be not able to take advantage of it”

For the second poverty index, $2 poverty line, the red triangle represents poverty rate for Bangladesh while the red square is for Pakistan. Increasing the criteria from $1.25 per day to $2 per day normally results in a higher poverty rate because it will cover more people at different level of income under the benchmark, for example, people who spend their money $1.75 per day will become the poor under this situation. Under this poverty line, 88.18 percent of Pakistan’s population was the poor in 1991 while 92.99 percent of Bangladesh’s population was the poor at 1992. The important thing is that there are 23.47 percent added for Pakistan when using $2 poverty line but it is 22.77 percent added for Bangladesh which means that the number of people who live around $1.25 and $2 in Pakistan is greater than in Bangladesh. This statement is confirmed by a small difference between the difference of the poor under $1.25 poverty line and $2 poverty line. Simply put, at $1.25 poverty line, the proportion of the poor in Bangladesh is greater than in Pakistan around 5.51 percent but at $2 poverty line, the difference becomes closer to 4.81 percent. However, at latest data, Pakistan was better than Bangladesh in reducing its poverty. But the more important thing is that, under $2 poverty line, more than half of population in Pakistan spent money for living per day less than $2 which critically greater than only 12.74 percent of its population measured at $1.25 poverty line. The question has raised that which more proper poverty line is but it is difficult to answer - $1.25 is too low for some economist but $2 is too high for other academicians. Then, we turn our interest to poverty line at an average national income, namely national poverty line. 

For adaptation of CAGR for economic growth in poverty analysis, between 1992 to 2010, poverty in Bangladesh reduced 2.66 percent per year (over 18 years) while, between 1991 to 2011, poverty in Pakistan decreased around 3 times more than Bangladesh with 7.80 percent per year (over 20 years). Thus, it would be indicated that a higher growth rate of Bangladesh does not efficiently and effectively in reducing poverty in Bangladesh. 

National poverty line is able to tell us the relative poverty because it defines the poor by the society’s average – poorer compared to friends. Unfortunately, there are no any data for Pakistan until 1999 which its poverty rate was 30.60 percent of its population. However, it is likely to be that the poverty rates at national poverty line yields the most preferable outcome in measuring poverty. For example, in 2005, poverty rate of Bangladesh under this method is only 40 percent compared to $2 poverty line which results in 80 percent of its population. 

For considering a change for two countries, there is only a year, 2005, a data on poverty was issued for two countries. For $1.25 poverty line, poverty in 50.47 percent of its population in Bangladesh while 22.59 percent of its population in Pakistan. However, in 2010, poverty in Bangladesh declined by 14.31 percent while 43.60 percent for Pakistan in 2011. And for another two poverty lines, a rate of change of poverty in Pakistan was better than Bangladesh. Comparing GDP growth rate between 2005 and 2010, at that time, GDP for Bangladesh increased by 38.52 percent while GDP for Pakistan increased by only 26.54 percent which confirms the statement above that a rate of growth of  Bangladesh contributes to poverty reduction less than Pakistan. Country got more output and money but they are concentrated to only the rich, not flow to other tiers of society. 

From current situation, it is considered to moderately tough Bangladesh can outpace Pakistan due to Pakistan’s economic policies nowadays. Now, Pakistan has already signed four Free Trade Agreements (FTAs) in bilateral pattern with Malaysia, China, and Sri Lanka and in regional pattern as SAFTA. Additionally, there is preferential agreement aimed at boosting trade with Iran, Mauritius, and Indonesia and in the step of negotiation with Afghanistan, Japan, Lao, New Zealand, Mexico, South Africa, and Tunisia. However, Bangladesh has not signed bilateral trade agreement with any countries but it is the member of BIMSTEC and SAFTA. So, an economic motivator of Bangladesh is relative inactive compared with Pakistan. For 2013 structure of economy, collected data from the World Bank, 53 percent of Pakistan’s GDP is borne by service sector, followed by agriculture and manufacture while 56 percent of Bangladesh’s economy is borne by service sector as well but it is followed by manufacture (28 percent) and agriculture (16 percent). For main obstacle in development, Pakistan always face with three issues including low quality and quantity of labor force, terrorism, and energy while the concern toward Bangladesh is inequality, low skilled labor, and infrastructure. So, the main task of Bangladesh government would be the efficient way to raise citizen’s living standard beginning with infrastructure, followed by education and political right among people.

New Hub New Hope

Even though Bangladesh’s economy has relied on the export for only 23 percent of its GDP in 2013 but its importance, revealed by the World Bank, has increased by 64.29 percent over the past ten years which indicates the necessity for special economic zone aimed at facilitating trade. Port of Karachi is currently the main external engine of country’s income but it is not enough for today that we, all, are in the age of internationally economic interdependence. Thus, through the advantage of geography, the countries located around the Bay of Bengal should take this opportunity. Even though there is the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) connected a group of countries in South Asia and Southeast Asia, its progress was too slow to encourage the prosperity due to a large and complicated model of integration. 

Source: Revised byAuthor and obtained map from Map data 2014 AutoNavi, Google
 
The BMT (namely Bangladesh, Myanmar, and Thailand) model states the regional hub in a group of countries located in the corridor of Bengal’s Bay. With BMT, transportation cost is able to be reduced because no need for cargo ship to go to Singapore. China can benefit this model because it can use this route to be the gateway to the South Asia. When the transportation cost is low, everything is possible. Myanmar has a good relationship, politically, with China. Investment in infrastructure from China created Myanmar to be more competitive in the very near future. However, there is still the border tension between Myanmar and Bangladesh which may be the challenge for this model. To enhance trade and take this advantage aimed at regional development, three countries should realize this chance and start cooperating by setting the Joint Trade Committee (JTC) to figure out the possibility of this model.

References

Bangladesh Ministry of Commerce. (n.d.). Regional and Multilateral Trade Agreement. 
            Retrieved December 22, 2014 from http://www.mincom.gov.bd/reg_bil_trade.php
International Monetary Fund (IMF). (2013). IMF says Pakistan at high risk of economic crisis.       
            Retrieved December 11, 2014 from http://uk.reuters.com
Pakistan Ministry of Commerce. (n.d.). Trade Agreements. Retrieved December 22, 2014              
            from http://www.commerce.gov.pk
World Bank. (2014). World Development Indicators. The World Bank.



[1] The economy of Pakistan and Bangladesh relied on the export, in 2013, to only 13 and 23 percent of its GDP, respectively, which may be the reason for small negative impact on both economies from crisis.