This op-ed that I wrote was published in the newspaper Dhaka Tribune on December 23, 2015.
As Bangladesh embarks on a new era of being a lower-middle income nation, some questions remain about what steps should be taken next to further develop the country. Complicating matters are the large differences in living conditions and economic opportunities between the urban and rural areas of Bangladesh.
Just travelling a few miles outside of the main cities of Dhaka or Chittagong shows stark differences between rural and urban areas of Bangladesh. The government needs to do a balancing act between Dhaka, the other urban areas of Bangladesh, and the rest of the country to ensure that there is a balanced economic growth across the country.
The labour force of Bangladesh is 77 million and growing, according to the World Bank. This can be both a blessing, and a curse. It is a blessing as it provides a cheap supply of labour who can work with low pay and this factor can attract industries that require a large pool of unskilled workers.
However, unskilled workers will earn a low pay, and the only way to develop the nation is to ensure that the labour force becomes productive and demands a higher pay. Bangladesh needs to create 21 million jobs in 10 years, according to Kaushik Basu, the chief economist of the World Bank.
Herein comes the dilemma. How can Bangladesh continue its growth trajectory if it has to rely on attracting industries that only require low-skilled workers? If the country tries to attract industries that require high-skill workers, it will only employ a small fraction of the workforce, and the unskilled workers will be left behind, creating uneven growth.
Moreover, a recent article in The Wall Street Journal indicates the assumption that manufacturing-led growth is a feasible strategy for poor countries to achieve high-income status may not be so true anymore. Many developing countries are experiencing a fall in the contribution of manufacturing sector to GDP according to the article. A number of reasons were given, but one big reason is the rise of China as the world’s manufacturing hub.
As Bangladesh is currently over-specialising in low-end manufacturing of clothes, it is possible that the country may not move to higher-end manufacturing, and may even see the manufacturing sector shrink in the future.
So what hope does a country like Bangladesh have to achieve upper-middle income status in a reasonable amount of time? Improving infrastructure, such as building seaports or a new airport, can help to improve bottlenecks to trade and employ thousands, but will take years to build and decades to realise the full economic impact.
As mentioned above, there is a large pool of unskilled workers that need to be employed, along with the growing number of skilled workers.
While looking at projects that can improve the long run growth prospects of the country, Bangladesh needs to look into steps that can create new employment opportunities. Besides implementing large-scale infrastructure projects, the government can focus on increasing employment in the service sector. It can encourage local transport companies to trans-ship goods from one part of India to another through Bangladesh.
Online payment sites, such as PayPal, can be allowed to operate in Bangladesh so that small manufacturers can sell their products through online vendors. Non-resident Bangladeshis should be courted to invest in Bangladesh.
Students should be encouraged to be entrepreneurial, and all kinds of facilities, like subsidised office-space for start-ups, can be given to recent college graduates to start their business. But whatever the steps the country takes, there needs to be a balance in employment opportunities so that in the short-run, both skilled and unskilled workers can gain employment to ensure an even development in the country.
Friday, December 25, 2015
Thursday, December 17, 2015
Multidimensional Human Opportunity Index
My paper, co-authored with my colleague Shabana Mitra (Indian Institute of Management-Bangalore) was recently accepted for publication at the journal "Social Indicators Research." The paper, titled Multidimensional Human Opportunity Index, is an extension of the Human Opportunity Index (HOI) developed by the World Bank.
The explanation of the HOI is presented in my earlier blog post. In a nutshell, the HOI first measures the probability of access the children of a country have to a certain basic economic service (such as schooling, clean water, etc.). Let this be M. In the next step, the measure creates bins based on certain characteristics of children that are beyond their control, like their gender, family economic condition, residence, gender of head of household, and other socio-economic factors. In the next step, the probability of access to that service by children in each bin is calculated. The probability of those bins that are below M are selected (if each bin is x, then p(x) is the probability of access for bin x) and the value of HOI is said to be the following:
HOI = M - E(M - p(x) | x is a bin that has access lower than M)
where E(M - p(x) | x is a bin that has access lower than M) is the average of the difference between M and p(x).
In our paper, Multidimensional Human Opportunity Index (MHOI), we note that a child needs a bundle of basic services for proper growth and development. Besides access to clean water, a child needs access to school, access to healthcare, access to electricity and access to good transportation facilities (this list is not exhaustive). If one of them is absent, it can hinder the proper development of the child. For example, school access would not be of much value if the child is sick and does not have a good healthcare facility nearby, or if the child does not have access to clean water. So, instead of looking at the basic services piecemeal, we create a bundle of basic services that are deemed essential to a child. We then measure the probability of access a child has to that bundle of basic services, and then use the similar method to calculate HOI to calculate MHOI. A higher value of MHOI indicates that across the country, there is a more equal distribution of the bundle of services deemed essential for the development of a child.
We use data from Nepal and Bhutan to show how to apply our data to measure MHOI. We find that only about two-thirds of households in Bhutan and one-half of households in Nepal have access to the bundle of basic services that are essential to the development of a child in 2011; although we do find that the MHOI indicator has been improving in both Nepal and Bhutan for the past 10 years. The MHOI of Bhutan is much higher than that of Nepal, but Nepal is catching up.
Such indices can help us evaluate the overall effectiveness of provision of basic services to the population. It can help countries measure whether they are in path to achieving the Sustainable Development Goals of the UN.
The explanation of the HOI is presented in my earlier blog post. In a nutshell, the HOI first measures the probability of access the children of a country have to a certain basic economic service (such as schooling, clean water, etc.). Let this be M. In the next step, the measure creates bins based on certain characteristics of children that are beyond their control, like their gender, family economic condition, residence, gender of head of household, and other socio-economic factors. In the next step, the probability of access to that service by children in each bin is calculated. The probability of those bins that are below M are selected (if each bin is x, then p(x) is the probability of access for bin x) and the value of HOI is said to be the following:
HOI = M - E(M - p(x) | x is a bin that has access lower than M)
where E(M - p(x) | x is a bin that has access lower than M) is the average of the difference between M and p(x).
In our paper, Multidimensional Human Opportunity Index (MHOI), we note that a child needs a bundle of basic services for proper growth and development. Besides access to clean water, a child needs access to school, access to healthcare, access to electricity and access to good transportation facilities (this list is not exhaustive). If one of them is absent, it can hinder the proper development of the child. For example, school access would not be of much value if the child is sick and does not have a good healthcare facility nearby, or if the child does not have access to clean water. So, instead of looking at the basic services piecemeal, we create a bundle of basic services that are deemed essential to a child. We then measure the probability of access a child has to that bundle of basic services, and then use the similar method to calculate HOI to calculate MHOI. A higher value of MHOI indicates that across the country, there is a more equal distribution of the bundle of services deemed essential for the development of a child.
We use data from Nepal and Bhutan to show how to apply our data to measure MHOI. We find that only about two-thirds of households in Bhutan and one-half of households in Nepal have access to the bundle of basic services that are essential to the development of a child in 2011; although we do find that the MHOI indicator has been improving in both Nepal and Bhutan for the past 10 years. The MHOI of Bhutan is much higher than that of Nepal, but Nepal is catching up.
Such indices can help us evaluate the overall effectiveness of provision of basic services to the population. It can help countries measure whether they are in path to achieving the Sustainable Development Goals of the UN.
Tuesday, December 8, 2015
University and community partnership
The location of colleges and universities in the US is diverse. There are universities located in downtown, suburbs or even in sparsely-populated rural community. In many cases, these universities operate in a 'bubble' where students and faculty have little interaction with the wider community around them. As members of the local community, universities can provide valuable community service that can reinvigorate neighboring areas that suffer from many adverse socio-economic issues - such as low-quality public school system, high poverty rates, lack of jobs, etc.
A model can be the "Great Cities" program of the University of Illinois - Chicago (UIC). Students and faculty of UIC provide services to improve the neighborhood public school system, provide technical education to school children in underprivileged communities,and help to improve the neighborhood housing quality. Elon University has the "It takes a Village Project" where undergraduate students tutor elementary and middle-school students of local, under-performing public schools. Similar projects have been undertaken successfully in some other universities, and some of the best practices are listed in this link.
Such community involvement by universities can improve the surrounding communities and therefore, should be actively encouraged. Every university should have an office dedicated to community outreach, and should encourage faculty and students undertake projects that benefit the surrounding communities. The experience of community outreach programs should be shared, and the best practices should be adopted by other universities. This can help universities be more accessible to the locals, and locals will feel that the universities are part of their community, instead of being a foreign bubble in their locality.
A model can be the "Great Cities" program of the University of Illinois - Chicago (UIC). Students and faculty of UIC provide services to improve the neighborhood public school system, provide technical education to school children in underprivileged communities,and help to improve the neighborhood housing quality. Elon University has the "It takes a Village Project" where undergraduate students tutor elementary and middle-school students of local, under-performing public schools. Similar projects have been undertaken successfully in some other universities, and some of the best practices are listed in this link.
Such community involvement by universities can improve the surrounding communities and therefore, should be actively encouraged. Every university should have an office dedicated to community outreach, and should encourage faculty and students undertake projects that benefit the surrounding communities. The experience of community outreach programs should be shared, and the best practices should be adopted by other universities. This can help universities be more accessible to the locals, and locals will feel that the universities are part of their community, instead of being a foreign bubble in their locality.
Monday, November 16, 2015
Economic Growth in Pre-Industrial Europe
A new economics article, written by Roger Fouquet and Stephen Broadberry addresses GDP per capita of six European countries six centuries before the Industrial Revolution. The main data of the article is summarized in the graph below:
The countries studied are England/Great Britain, Spain, Portugal, Italy, Sweden and Holland. A few things emerged from this graph:
(i) the authors show in the paper that economic fluctuations were not non-existent in pre-industrial Europe. There were incomes rising and falling in the long run.
(ii) there was some growth in income in the long run, although there was major fluctuations of average incomes in the short run. Except for Spain, individuals in the other five countries faced a lot of uncertainty of income from one year to the next, but in the long run, Holland, Portugal and Britain saw incomes grow. Long run incomes in Italy stabilized after 1500, although there was a lot of fluctuations,
History might help to explain why incomes of Britain and Holland rose in the long run, while Spain stagnated, even though they all were colonizing foreign lands. Britain and Holland let private enterprises engage in trade and colonization, at least till the 19th century, while Spain and Portugal kings controlled the trade.
However, the past does not necessarily dictate the present and future. At one instance, Britain, Sweden, Spain and Portugal all had similar incomes (around 1600 AD). Yet today, Sweden is wealthier than Portugal, Spain and Britain. Government policies, education and institutions all can help change growth trajectory of a country.
(i) the authors show in the paper that economic fluctuations were not non-existent in pre-industrial Europe. There were incomes rising and falling in the long run.
(ii) there was some growth in income in the long run, although there was major fluctuations of average incomes in the short run. Except for Spain, individuals in the other five countries faced a lot of uncertainty of income from one year to the next, but in the long run, Holland, Portugal and Britain saw incomes grow. Long run incomes in Italy stabilized after 1500, although there was a lot of fluctuations,
History might help to explain why incomes of Britain and Holland rose in the long run, while Spain stagnated, even though they all were colonizing foreign lands. Britain and Holland let private enterprises engage in trade and colonization, at least till the 19th century, while Spain and Portugal kings controlled the trade.
However, the past does not necessarily dictate the present and future. At one instance, Britain, Sweden, Spain and Portugal all had similar incomes (around 1600 AD). Yet today, Sweden is wealthier than Portugal, Spain and Britain. Government policies, education and institutions all can help change growth trajectory of a country.
Saturday, November 7, 2015
The Uberization phenomenon
It's an interesting phenomenon. Just like how Uber disrupted the traditional taxi cartel of big cities, and also spread taxi services in the smallest towns of the US, other firms are trying to do the same in traditionally regulated industries. Some of these industries are ripe for disruption, and startups are doing so, according to this WSJ article. http://www.wsj.com/articles/the-uberization-of-finance-1446835102
Lending and stock brokerage are seeing a rise in a phenomenon called "Uberizarion" - where peer-to-peer contacts rule. Such disruption will benefit consumers by reducing search cost and can provide borrowers who are usually shunned by banks an avenue to obtain funds. The stronghold of a few financial institutions on these services may be broken soon. Already, we are seeing a decrease in the number of bank branches. Maybe they might be a relic of the past soon?
Thursday, November 5, 2015
A New way of Voting to Raise Turnout
Voter turnout in local, state and national elections is low in the US. The voter turnout across the US during presidential elections hovers at around 60 percent. In one governor election in the state of Kentucky, the voter turnout was 30 percent, showing that most individuals are not exercising their voting rights in key elections. This problem is not prevalent only in the US; in OECD countries, the average voter turnout is around 70 percent.
Using game theory, it can be argued that a person should not vote because their one vote will not necessarily change the outcome of the election, given that everyone else votes. However, if everyone thinks the same way, we end up having few people deciding who will be in charge of the government.
One way of making people vote is to make it mandatory, like that in Australia. That itself may be unpopular. A better way I think is to make voting easier. It might be cumbersome for people to line up to vote, especially when in many countries, election day is not a public holiday. People who work on hourly jobs, or who cannot get time off may be discouraged to vote. With the rise of internet technology, governments could use internet for voting. People who are registered voters could get a special code from the government that they could use to vote on a specific website, from their smartphones or computers. Kiosks can be set up in different convenient locations, like schools, colleges, and even coffee shops or convenience stores so that people can cast their votes while dropping their children off to school or when picking up breakfast/coffee. These steps could make voting process easier which can increase voter turnout in all forms of elections.
Using game theory, it can be argued that a person should not vote because their one vote will not necessarily change the outcome of the election, given that everyone else votes. However, if everyone thinks the same way, we end up having few people deciding who will be in charge of the government.
One way of making people vote is to make it mandatory, like that in Australia. That itself may be unpopular. A better way I think is to make voting easier. It might be cumbersome for people to line up to vote, especially when in many countries, election day is not a public holiday. People who work on hourly jobs, or who cannot get time off may be discouraged to vote. With the rise of internet technology, governments could use internet for voting. People who are registered voters could get a special code from the government that they could use to vote on a specific website, from their smartphones or computers. Kiosks can be set up in different convenient locations, like schools, colleges, and even coffee shops or convenience stores so that people can cast their votes while dropping their children off to school or when picking up breakfast/coffee. These steps could make voting process easier which can increase voter turnout in all forms of elections.
Tuesday, November 3, 2015
Rising Inequality - why does it matter?
Income inequality has become an important topic of discussion since the economist Thomas Piketty wrote a book titled Capital in the 21st Century. One common measure of inequality is the Gini index, a number between 0 and 1 (or 0 and 100 if it is multiplied by 100), and the closer the inequality level is to 1 (or 100), the higher is the level of inequality. The US does have a high level of inequality, and it is one of the highest in the world.
How can we visualize inequality in a simple way? Let us suppose there are two countries, A and B, and each country has 2 individuals. In country A, the incomes of the two individuals are 80 and 120 respectively; in country B, it is 40 and 160. In both countries, average income is 100, yet incomes are more dispersed in country B than in country A, so inequality is higher in country B when compared to that of country A.
How can we visualize inequality in a simple way? Let us suppose there are two countries, A and B, and each country has 2 individuals. In country A, the incomes of the two individuals are 80 and 120 respectively; in country B, it is 40 and 160. In both countries, average income is 100, yet incomes are more dispersed in country B than in country A, so inequality is higher in country B when compared to that of country A.
Although there is a general belief that in a meritocratic society, there will be some inequality, a high level of inequality can have some negative social consequences. Higher
inequality can lead to more social
tensions, and insecure
property rights. It can also increase the incidence of violent crimes, high rates of mortality, and a
deterioration of social trust. All these can reduce the future growth prospects of a nation.
Policymakers need to work into ways to reducing inequality. Increasing access to quality education and empowering trade unions can help. Strong social support programs can help the poor and middle-class recover from a negative shock. A progressive tax system can help to limit the excessive rise in inequality. These steps can help to reduce social ills caused by inequality and promote future growth and sustainability.
Monday, October 26, 2015
Making Africa Wealthier
An article in the Economist has highlighted that the middle-class of Africa is growing too slowly. Although the continent has been experiencing continuous GDP growth, the growth has not been inclusive, leading to an increase in inequality. The continent is too reliant on natural resources, so any changes in the global price of resources can be a boon or bane for the continent.
African countries can pool their resources together to achieve shared prosperity. Some of the things they could do are:
1. open an interdisciplinary research university with branches across the continent where students and researchers can work to solve Africa's problems. The universities can be modeled after the Indian Institute of Technology of India. These universities can help to generate technology solving Africa's problems, in addition to creating a pool of labor with adequate human capital
2. take steps to increase trade between countries, and make it easier for firms and people to open businesses across Africa. This will cushion African countries from negative external economic shocks.
3. encourage FDI in manufacturing sectors like footwear and garments, and link cotton producers to those manufacturing sectors.
4. improve the transnational infrastructure and ports.
These would help to increase manufacturing activities, and create a pool of people who can move to the middle-class category. Once the trajectory is set, the size of the middle class will increase substantially. This can help the continent as a whole to prosper.
African countries can pool their resources together to achieve shared prosperity. Some of the things they could do are:
1. open an interdisciplinary research university with branches across the continent where students and researchers can work to solve Africa's problems. The universities can be modeled after the Indian Institute of Technology of India. These universities can help to generate technology solving Africa's problems, in addition to creating a pool of labor with adequate human capital
2. take steps to increase trade between countries, and make it easier for firms and people to open businesses across Africa. This will cushion African countries from negative external economic shocks.
3. encourage FDI in manufacturing sectors like footwear and garments, and link cotton producers to those manufacturing sectors.
4. improve the transnational infrastructure and ports.
These would help to increase manufacturing activities, and create a pool of people who can move to the middle-class category. Once the trajectory is set, the size of the middle class will increase substantially. This can help the continent as a whole to prosper.
Thursday, October 22, 2015
Interactive Maps/Infographics
There is a lot of websites that provide interactive visual of data. Some of them are listed below:
US Data:
US Data:
... more will be added as I find them online.
Tuesday, October 20, 2015
US Short Term Energy Outlook of EIA
The Energy Information Administration (EIA) of the US government released the Short Term Energy and Winter Fuels Outlook on October, 2015. The report predicts that the demand for gasoline will continue to increase till the end of 2016 because of strong performance of the US economy and the continued fall in unemployment rates. However, US crude oil production has been falling in recent months, and will continue to fall till mid-2016, according to the report. This is mainly due to the excess supply of crude oil in the world at present.
These factors, along with the low price of oil, will have some impact on employment in the crude oil extraction sector. Besides, energy from renewable sources continues to rise. About 10 percent of the energy in the US is derived from renewable sources, and it is expected that most of the energy will from from renewable sources by 2040. Thus, even though the economy is performing relatively well, and unemployment rates are low, the crude oil sector may see job losses in the coming months, States that are relatively more dependent on the crude oil extraction industry may experience some negative effects on the economy, although in general, the nation as a whole is performing well.
These factors, along with the low price of oil, will have some impact on employment in the crude oil extraction sector. Besides, energy from renewable sources continues to rise. About 10 percent of the energy in the US is derived from renewable sources, and it is expected that most of the energy will from from renewable sources by 2040. Thus, even though the economy is performing relatively well, and unemployment rates are low, the crude oil sector may see job losses in the coming months, States that are relatively more dependent on the crude oil extraction industry may experience some negative effects on the economy, although in general, the nation as a whole is performing well.
Tuesday, October 13, 2015
Human Opportunity Index of the World Bank
In 2010, the World Bank released a report on the Human Opportunity Index (HOI) for Latin American and Caribbean countries. The HOI is different from measures of poverty in that it does not measure deprivation of a commodity by people in a community; instead, it measures the level of access of a certain basic service by the members in a community.
Some basic services that we believe should be available to all are (but not exhaustive) are: (i) access to primary and secondary education; (ii) access to healthcare; (iii) access to clean water; (iv) access to public transportation; and (v) access to government offices. However, it may be that some of these services are not available to all the members of a region or a country, mainly because of certain individual or regional characteristics. For example, in some countries, females are not allowed to go to schools by their families even though the government may encourage universal education because the school is too far away from home, or for other reasons. Thus, the HOI measures the level of access of a basic service (access to education in this case) available to all the children in a region or a county.
The HOI is measured in the following way:
Suppose there are N children in a country. Suppose that a proportion of p of children in a country have access to a basic service, like primary education. These children have different characteristics, based on their gender, region of residence, whether the head is male of female, or wealth of household. Therefore, a male child of a poor family headed by a female in region x will have a different level of access to education than a female child of a rich family living in region y. If there are 2 genders, R regions in a country, male or female head of a family, and 3 different wealth levels (rich, middle class, poor), then there will be a total of 2 x R x 2 x 3 = 12R different characteristics. Let x = {1, 2, ..... 12R} denote each of the characteristics. More characteristics can be added to the mix if needed.
Across the country, as said before, suppose p is the proportion of children who have access to education. Let p(x) be the probability that children with characteristics x have access to that service. If p(x)<p then that group is disadvantaged, because they are worse than the average of the nation, and if p(x)>p then the group is advantaged because it have more access than the average population. If V is the disadvantaged group, then the Human Opportunity Index is:
HOI = p - E(p - p(x) | x is in V)
The term E(p - p(x) | x is in V) is computed as follows: it is the average of the difference of p and p(x) of all the characteristics that are disadvantaged. This value is then subtracted from p to calculate the HOI.
HOI is a number between 0 and 1. The closer it is to 1 the more there is access of a basic service by all who deserve it. HOI can be calculated of each of the basic service that is available to the citizens of a country. If the HOI of a service is low, governments should work to improve the access of that service, and not just provide it.
Some basic services that we believe should be available to all are (but not exhaustive) are: (i) access to primary and secondary education; (ii) access to healthcare; (iii) access to clean water; (iv) access to public transportation; and (v) access to government offices. However, it may be that some of these services are not available to all the members of a region or a country, mainly because of certain individual or regional characteristics. For example, in some countries, females are not allowed to go to schools by their families even though the government may encourage universal education because the school is too far away from home, or for other reasons. Thus, the HOI measures the level of access of a basic service (access to education in this case) available to all the children in a region or a county.
The HOI is measured in the following way:
Suppose there are N children in a country. Suppose that a proportion of p of children in a country have access to a basic service, like primary education. These children have different characteristics, based on their gender, region of residence, whether the head is male of female, or wealth of household. Therefore, a male child of a poor family headed by a female in region x will have a different level of access to education than a female child of a rich family living in region y. If there are 2 genders, R regions in a country, male or female head of a family, and 3 different wealth levels (rich, middle class, poor), then there will be a total of 2 x R x 2 x 3 = 12R different characteristics. Let x = {1, 2, ..... 12R} denote each of the characteristics. More characteristics can be added to the mix if needed.
Across the country, as said before, suppose p is the proportion of children who have access to education. Let p(x) be the probability that children with characteristics x have access to that service. If p(x)<p then that group is disadvantaged, because they are worse than the average of the nation, and if p(x)>p then the group is advantaged because it have more access than the average population. If V is the disadvantaged group, then the Human Opportunity Index is:
HOI = p - E(p - p(x) | x is in V)
The term E(p - p(x) | x is in V) is computed as follows: it is the average of the difference of p and p(x) of all the characteristics that are disadvantaged. This value is then subtracted from p to calculate the HOI.
HOI is a number between 0 and 1. The closer it is to 1 the more there is access of a basic service by all who deserve it. HOI can be calculated of each of the basic service that is available to the citizens of a country. If the HOI of a service is low, governments should work to improve the access of that service, and not just provide it.
Tuesday, October 6, 2015
Sustainable Development Goals
The United Nations recently released a set of goals to be met by 2030. Named the "Sustainable Development Goals," there are 17 targets that together, would improve the overall quality of life of each and every citizen of the world. The broad goals are:
1. Eliminate extreme poverty - that is, no one in the world will live on less than $1.25/day
2. Eliminate hunger from this world, and improve food security
3. Enable people to lead a healthy life
4. Provide quality education to all
5. Promote gender equality, and female empowerment
6. Promote a sustainable management of water resources and sanitation
7. Provide energy to all
8. Ensure sustainable and inclusive economic growth
9. Create sound infrastructure that allows for industrialization
10. Reduce the level of inequality between and inside countries
11. Improve quality of life in cities
12. Promote sustainable production and consumption of resources
13. Tackle climate change
14. Promote conservation in oceans
15. Promote sustainable land use
16. Develop societies that are peaceful and inclusive
17. Ensure countries work together to achieve sustainable goals.
These are without doubt, very ambitious targets. These goals imply that just raising incomes will not bring prosperity among others. So, other indices of well-being must be measured besides income. Besides implementing these goals, policymakers should establish proper measurement techniques to track the progress of each goal.
These indices can be used to effectively measure the progress of these goals:
1. the multidimensional poverty index (MPI) can be used to create one index that can aggregate the progress of different dimensions of deprivation, such as income, hunger, clean water,
2. the multidimensional human opportunity index can be used to track the level of access of different services, like access to energy, schools, hospitals and other public institutions.
3. The elasticity of growth measures can be used to see if there is inclusive growth in countries
4. Measuring air, water, and land quality should determine how effectively we are conserving the environment.
Tracking the progress periodically can help policymakers gauge where they are and what they need to do to improve the lives of people. Thus, besides spending money on meeting these goals, governments and development partners should spend considerable amount of money on data collection and progress reports.
1. Eliminate extreme poverty - that is, no one in the world will live on less than $1.25/day
2. Eliminate hunger from this world, and improve food security
3. Enable people to lead a healthy life
4. Provide quality education to all
5. Promote gender equality, and female empowerment
6. Promote a sustainable management of water resources and sanitation
7. Provide energy to all
8. Ensure sustainable and inclusive economic growth
9. Create sound infrastructure that allows for industrialization
10. Reduce the level of inequality between and inside countries
11. Improve quality of life in cities
12. Promote sustainable production and consumption of resources
13. Tackle climate change
14. Promote conservation in oceans
15. Promote sustainable land use
16. Develop societies that are peaceful and inclusive
17. Ensure countries work together to achieve sustainable goals.
These are without doubt, very ambitious targets. These goals imply that just raising incomes will not bring prosperity among others. So, other indices of well-being must be measured besides income. Besides implementing these goals, policymakers should establish proper measurement techniques to track the progress of each goal.
These indices can be used to effectively measure the progress of these goals:
1. the multidimensional poverty index (MPI) can be used to create one index that can aggregate the progress of different dimensions of deprivation, such as income, hunger, clean water,
2. the multidimensional human opportunity index can be used to track the level of access of different services, like access to energy, schools, hospitals and other public institutions.
3. The elasticity of growth measures can be used to see if there is inclusive growth in countries
4. Measuring air, water, and land quality should determine how effectively we are conserving the environment.
Tracking the progress periodically can help policymakers gauge where they are and what they need to do to improve the lives of people. Thus, besides spending money on meeting these goals, governments and development partners should spend considerable amount of money on data collection and progress reports.
Thursday, October 1, 2015
SMEs and Economic Growth
A Small and Medium Enterprise (SME) has different definition, based on which organization is defining it. The World Bank defines an SME as a business enterprise employing less than 300 workers, with an annual turnover and assets of less than $15 million each. The African Development Bank, on the other hand, defines SME as a business entity with less than 50 workers. Norway defines SME as an organization with less than 100 workers, while Vietnam defines it as one with less than 300 workers.
Small and Medium Enterprises (SMEs) provide an important avenue for job creation in any country - developed or developing. For example, in OECD countries, about 60 to 70 percent of all workers work in SMEs, showing that most workers are not employed in public sector or in large enterprises. There is an important link between SMEs and economic growth. Cross-country analysis has shown that growth in SMEs can positively increase economic growth. An analysis from India also shows the positive link between SME growth and GDP growth. A recent World Bank study has shown that giving funds randomly to small businesses in developing countries can increase their size, which can eventually help to improve job prospects and development of poorer countries.
Not surprisingly, a better business environment positively contributes to the growth of SME. However, SMEs face impediments to grow, because of financial constraints. An SME might find it harder than a large firm to raise capital for expansion. Although commercial banks find lending to SMEs as profitable entities to loan funds, much of their loan portfolio is dedicated to larger firms. Developing countries should therefore ensure that they have favorable business policies and ease of raising capital for SMEs. Besides attracting large scale FDI (which may, or may not have the desired economic effect), governments should promote the development of the SMEs. This can help to generate employment, raise incomes and enhance economic growth in the long run.
Small and Medium Enterprises (SMEs) provide an important avenue for job creation in any country - developed or developing. For example, in OECD countries, about 60 to 70 percent of all workers work in SMEs, showing that most workers are not employed in public sector or in large enterprises. There is an important link between SMEs and economic growth. Cross-country analysis has shown that growth in SMEs can positively increase economic growth. An analysis from India also shows the positive link between SME growth and GDP growth. A recent World Bank study has shown that giving funds randomly to small businesses in developing countries can increase their size, which can eventually help to improve job prospects and development of poorer countries.
Not surprisingly, a better business environment positively contributes to the growth of SME. However, SMEs face impediments to grow, because of financial constraints. An SME might find it harder than a large firm to raise capital for expansion. Although commercial banks find lending to SMEs as profitable entities to loan funds, much of their loan portfolio is dedicated to larger firms. Developing countries should therefore ensure that they have favorable business policies and ease of raising capital for SMEs. Besides attracting large scale FDI (which may, or may not have the desired economic effect), governments should promote the development of the SMEs. This can help to generate employment, raise incomes and enhance economic growth in the long run.
Friday, September 25, 2015
What is the role of government in society?
There is a huge debate in politics, and in economics, about the role of government in society. How far should the government go to ensure the rights of individuals?
In economic models, we sometimes use the notion of a 'benevolent dictator' or a 'social planner' to show how centralized planning can, sometimes, bring about the best outcome. However, at times, we also believe that the government can bring in unnecessary complications in the lives of people. The other case is ensuring that the role of the government is as limited as possible, or none at all.
Government is important in the proper functioning in society. It helps to uphold the rule of law, and enforce property rights. There is a large literature in economics that shows the relationship between strong institutions and economic growth. Private individuals may have motives that may not be conducive to others in society. For example, stealing from others can enrich the thief, at the expense of those whose items have been stolen. The roles of government here are (i) to ensure that resources owned by individuals are protected from theft and malicious damage, and (ii) if they are damaged or stolen, the government can prosecute the culprits, after all the evidence has been placed. These protections encourage individuals to accumulate wealth and enrich society as a whole. Even the staunchest libertarians (those how believe that the role of government should be as limited as possible), even believe that governments should exist to ensure property rights and enforce institutions.
The other important role of government is to provide some degree of social safety nets to the citizens. It could be in the form of subsidized education, relief for those in poverty, government support to the elderly, subsidized healthcare, and so on. It is this role of government that creates wide contention among people. Of course, certain actions of the government are justifiable, like the ban on cocaine, because even though the individual may think they have a right to the drug, it creates a whole lot of social problems that can negatively affect society. However, others, like providing free/subsidized healthcare, or assistance to those in poverty are highly contentious. The major reason behind this is that it makes the government too big and cumbersome, establishes too much red tape, and increases taxes on citizens.
Is there an optimal size of the government? There may not be a definite answer for that, and the answer depends upon what the people wants. If the people wants a society that provides free healthcare and education for its citizens, they will come up with ways to ensure that. If the people wants a laissez faire government, they will want the government to act accordingly. The size and role of the government therefore, is probably not dictated by economics, but by what the people mandates it to be.
In economic models, we sometimes use the notion of a 'benevolent dictator' or a 'social planner' to show how centralized planning can, sometimes, bring about the best outcome. However, at times, we also believe that the government can bring in unnecessary complications in the lives of people. The other case is ensuring that the role of the government is as limited as possible, or none at all.
Government is important in the proper functioning in society. It helps to uphold the rule of law, and enforce property rights. There is a large literature in economics that shows the relationship between strong institutions and economic growth. Private individuals may have motives that may not be conducive to others in society. For example, stealing from others can enrich the thief, at the expense of those whose items have been stolen. The roles of government here are (i) to ensure that resources owned by individuals are protected from theft and malicious damage, and (ii) if they are damaged or stolen, the government can prosecute the culprits, after all the evidence has been placed. These protections encourage individuals to accumulate wealth and enrich society as a whole. Even the staunchest libertarians (those how believe that the role of government should be as limited as possible), even believe that governments should exist to ensure property rights and enforce institutions.
The other important role of government is to provide some degree of social safety nets to the citizens. It could be in the form of subsidized education, relief for those in poverty, government support to the elderly, subsidized healthcare, and so on. It is this role of government that creates wide contention among people. Of course, certain actions of the government are justifiable, like the ban on cocaine, because even though the individual may think they have a right to the drug, it creates a whole lot of social problems that can negatively affect society. However, others, like providing free/subsidized healthcare, or assistance to those in poverty are highly contentious. The major reason behind this is that it makes the government too big and cumbersome, establishes too much red tape, and increases taxes on citizens.
Is there an optimal size of the government? There may not be a definite answer for that, and the answer depends upon what the people wants. If the people wants a society that provides free healthcare and education for its citizens, they will come up with ways to ensure that. If the people wants a laissez faire government, they will want the government to act accordingly. The size and role of the government therefore, is probably not dictated by economics, but by what the people mandates it to be.
Friday, September 18, 2015
Income Divergence in the US
The United States has a strong tradition of favoring hard-work and meritocracy - if someone works hard, or is meritorious, then that person can live the 'American Dream.' Recently, a number of analysis have questioned that the US is not as economically mobile as previously thought. Wage inequality has been rising the past 3 decades. Consequently, the rich is getting richer, and the poor is getting poorer.
Recently, a paper I authored was published in the journal Social Indicators Research, and it highlighted this phenomenon using a metric of measuring wage disparity called the generalized means.
The generalized means is a way of aggregating income of a population, shown by Foster and Székely (2008). The formula of calculating generalized means is as follows:
where, the x's are the incomes of each individual/family, n is the total number of individuals/family in the region, and α is an integer. If α=1, then the equation is a simple arithmetic mean of income in the region. If α is greater than 1, then it places more weight on the incomes of richer individuals, and if α is less than 1, it places more weight on the poorer individuals in the region.
Recently, a paper I authored was published in the journal Social Indicators Research, and it highlighted this phenomenon using a metric of measuring wage disparity called the generalized means.
The generalized means is a way of aggregating income of a population, shown by Foster and Székely (2008). The formula of calculating generalized means is as follows:
For example, let a certain region have three individuals, and their incomes are 100, 200, 300. If α=1, then according to the generalized mean formula above, the generalized mean is 200. If α=2, then the generalized mean is 216.024. If α=3, the value is 228.94. The higher the level of α=2, the higher is the generalized means. Similarly, if α=-1, the generalized means is 163.62, while it is 148.46 when α=-2.
Thus, if we have the income levels of all the individuals in a region across time, we use different values of α to see how the incomes of different sub-groups of the population are evolving over time. The figure below shows how the generalized means has been evolving in the US for different values of α:
The data has been obtained from the March CPS dataset, that is collected by the Census Bureau. This graph is also in the paper I authored
The figure summarizes the findings of my paper. Over the period 1975-2010, the US economy has been growing, except for a few instances of short recessions. However, we see that most of the income growth happened to those who are the top income earners in the US. The ones who earned low incomes did not enjoy the fruits of economic growth to the maximum extent. Economic growth in recent years mainly benefited the rich in the US, and those earning low incomes in the US did not get much benefit out of the growth.
As a policy implication, more needs to be done to ensure that those who are earning the bottom of the income distribution are able to move upwards. This can be done by helping to improve the skills and technical knowledge of those who are in the bottom.
The figure summarizes the findings of my paper. Over the period 1975-2010, the US economy has been growing, except for a few instances of short recessions. However, we see that most of the income growth happened to those who are the top income earners in the US. The ones who earned low incomes did not enjoy the fruits of economic growth to the maximum extent. Economic growth in recent years mainly benefited the rich in the US, and those earning low incomes in the US did not get much benefit out of the growth.
As a policy implication, more needs to be done to ensure that those who are earning the bottom of the income distribution are able to move upwards. This can be done by helping to improve the skills and technical knowledge of those who are in the bottom.
Saturday, September 12, 2015
Why invest to attract foreign tourists? Perspective from Bangladesh
At present, the government is heavily promoting the natural
wonders of Bangladesh to potential foreign tourists. A number of
tourism-related magazine and websites have touted that Bangladesh is the next
big destination to visit in the coming years. Of course, it sounds very rosy
when we are marketing ourselves as the next big must-see destination. However,
it also begs the question, why are we so keen on attracting foreign tourists?
Can’t this money be better spent somewhere else?
To the proponents of tourism, foreign tourists spend a large
amount of foreign currencies in Bangladesh, and this can help to generate
economic activity in the services sector, create employment, and so on. This,
compounded with the notion that Bangladesh is a beautiful destination to visit,
encourages the tour operators and policy makers to attract foreign tourists
into Bangladesh. After all, Bangladesh has the ‘world’s longest sea beach,’
Sundarbans, beautiful rural landscape, tea gardens, and the Hill Tracts that
have the potential to attract tourists. All that Bangladesh has to do is to
increase the number of tourists into the country to reap in the benefits. Thus, the government is
spending to upgrade Cox’s Bazaar Airport to an international airport, creating an
exclusive zone in Cox’s Bazaar, and spending heavily to brand and promote Bangladesh to foreign tourists..
My concern is, is this the best way to spend our resources?
Is it a good idea to build infrastructure that will be used at most, 6 months
out of the year? The Bangladesh Parjatan Corporation (the tourism authority of Bangladesh) says that the best time to visit Bangladesh is between September and March.
It makes sense, because the months of April through August is not a favorable
time to visit Bangladesh due to the monsoon season and excessive heat. If we
get heavy tourist traffic between September to March, we can assume that the
international tourism-related infrastructure (airports, hotels, entertainment
facilities, etc.) would be used to their potential during that period only. The
rest of the year, they will be lying idle. Employment in the tourism industry
is cyclical, and thus, similar to the tourism-related infrastructure, there
will be high employment of labor during the busy season, and low employment during the
lean season. As there will not be a steady use of these facilities, I do not
think that promoting tourism should be the way to go in a resource-poor country
like Bangladesh.
There is also the issue of transportation and safety.
Bangladesh has some of the most unsafe highways in the world. Without
fixing the transportation network of the country, it may not be the best idea
to promote tourism.
I would think that instead of promoting international tourism, the government should promote domestic tourism. The middle-class of Bangladesh is growing in number, and is also getting richer. They have the income to take a quick vacation to different parts of the country. The government can encourage domestic tourism by improving the road and rail infrastructure of the country. The private sector can create tourism facilities that cater to the local demand. Domestic tourism is not as fickle, and there will be a steady flow of tourists to those facilities year-round, even in the hot summer months, thus ensuring that those facilities have satisfactory utilization and employment generation. If foreigners would like to visit such facilities, so be it, but the country should definitely not go all out to create infrastructure geared solely for foreign tourists.
Saturday, September 5, 2015
The need for implementing innovative urban design
Every city has a different feel; however, many of them suffer from certain problems - the lack of an efficient public transportation system and a lack of proper housing. Infrastructure development has not kept up pace with population growth in cities. Cities in developing countries lack an efficient transportation system, while commuters to cities in North America are reliant on private transportation to commute to work. In most cities, rent can be so high that the poor are not able to afford a decent living space. All these create a number of negative externalities, like air pollution, traffic gridlock, and time wasted commuting to and from work.
Many solutions have been proposed and applied to cities to fix the urban transportation problems. Some are: paying tolls to use faster lanes, or tolls to enter the city center, or constructing metrorail/subway system in a city. There are some instances where cities were successful in overcoming the problems of a traffic gridlock. The city of Medellin in Columbia is a perfect example where a city created a network of sustainable public transportation network. The city government created an integrated transportation system that is a mixture of rapid bus transportation, cable cars, escalators and metro rail. A city surrounded by waterways can also add water buses transporting people and can integrate it in the public transportation system.
Cities are also in short supply of land. Land in cities cannot be misused, and if there is abandoned property or infrastructure in a city district, creative methods can be used to make it a public space. The High Line in New York City shows how an abandoned rail line can be transformed into a public space. Through public-private partnerships, abandoned spaces in cities can be transformed into different kinds of useful areas with parks, housing and offices. Many downtown areas in US which used to have a lot of abandoned factories or warehouses are being re-developed to mixed-use areas with offices, apartments, restaurants and entertainment areas. The American Tobacco Campus in downtown Durham, NC is a great example where an abandoned factory has been transformed into an innovative urban space.
Each city has a different set of problems and opportunities, so different solutions are needed to solve the problems using the opportunities available. One set of urban design cannot be applied to all cities. Instead of encroaching new lands for expansion and development, cities should focus on applying innovative ideas to create sustainable cities using their existing design and opportunities available.
Tuesday, September 1, 2015
Development
Is there a perfect model that promotes development, or end poverty? Policymakers and articles have been promoting the export-led growth of China, or of other East Asian countries, like Singapore, Malaysia, or Vietnam. Consequently, other countries have been prescribed similar policies to promote growth.
Just an export-led growth strategy may not be the only way to promoting development; if that were the case, then countries that are commodity-exporters, like Angola, Nigeria or Gabon could have been wealthy countries by now. Along with promoting industrialization, countries need to invest the proceeds to improving human capital, infrastructure, and promoting rule of law.
Also, a country should not directly copy the development strategies of other countries, but should tailor it according to the needs and the resource availability of the country. For example, a developing country with poor healthcare and education facilities should not invest heavily to construct an 8-lane highway to connect the industrial center to the nearest port. A road with a smaller width can probably do the work, while the rest of the money should be used to improve education and healthcare. Resources are limited, so countries should take steps to ensure that they get the most 'bang for the buck,' and not simply undertake projects that are flashy and that garners only short-term gains.
Just an export-led growth strategy may not be the only way to promoting development; if that were the case, then countries that are commodity-exporters, like Angola, Nigeria or Gabon could have been wealthy countries by now. Along with promoting industrialization, countries need to invest the proceeds to improving human capital, infrastructure, and promoting rule of law.
Also, a country should not directly copy the development strategies of other countries, but should tailor it according to the needs and the resource availability of the country. For example, a developing country with poor healthcare and education facilities should not invest heavily to construct an 8-lane highway to connect the industrial center to the nearest port. A road with a smaller width can probably do the work, while the rest of the money should be used to improve education and healthcare. Resources are limited, so countries should take steps to ensure that they get the most 'bang for the buck,' and not simply undertake projects that are flashy and that garners only short-term gains.
Thursday, August 27, 2015
Helping those in Extreme Poverty using "Targeting Ultra-Poor" Program
There is about a billion people who earn less than $1.25 a day, and these individuals are said to be living in extreme poverty. The absolute number of people in extreme poverty has been falling over the past 20 years, and there is a pledge to eliminate extreme poverty by 2030. This is a very ambitious task, and so far, there hasn't been any silver bullet that has been shown to eliminate poverty. Bringing people out of extreme poverty can be especially difficult because this group, even if they are out of poverty, are the most vulnerable to fall back into extreme poverty if some adverse economic shock afflicts them. Besides, programs and methods that have been proven effective in reducing extreme poverty in one area may fail to work in another region of the world.
One method that has been shown to be effective is the Targeting Ultra Poor program pioneered by BRAC, an development organization founded in Bangladesh. This program transfers an asset to a family in extreme poverty, and then provides them with training and cash support for the next 1.5 to 2 years. The cash transfer and training from the NGO gives the family support, while the family uses the asset for income generation. If the family is hit by an adverse economic shock in the early stage of the program, the cash support ensures that the family do not have to sell their asset to counteract the shock. After about two years, the family has sufficient financial resources to graduate from extreme poverty, and also reduce the probability of falling back into extreme poverty.
This project was originally implemented in the northern districts of Bangladesh, a region that is prone to extreme poverty. Analysis showed that the program not only increased cash income of those in extreme poverty, but also improved the overall well-being of the families. After it was shown to be successful in graduating most of the participants out of extreme poverty in the northern districts of Bangladesh, the program was replicated in other parts of the world. A recent article in the Economist magazine shows that it showed favorable results in other parts of the world too, like Ethiopia, Ghana, Honduras and India. The program, though labor-intensive, is cost effective.
Such an intervention can be safely assumed to be successful in reducing extreme poverty by a large extent. Development partners, and governments should think about adopting this program, besides microfinance, to help the extreme poor.
One method that has been shown to be effective is the Targeting Ultra Poor program pioneered by BRAC, an development organization founded in Bangladesh. This program transfers an asset to a family in extreme poverty, and then provides them with training and cash support for the next 1.5 to 2 years. The cash transfer and training from the NGO gives the family support, while the family uses the asset for income generation. If the family is hit by an adverse economic shock in the early stage of the program, the cash support ensures that the family do not have to sell their asset to counteract the shock. After about two years, the family has sufficient financial resources to graduate from extreme poverty, and also reduce the probability of falling back into extreme poverty.
This project was originally implemented in the northern districts of Bangladesh, a region that is prone to extreme poverty. Analysis showed that the program not only increased cash income of those in extreme poverty, but also improved the overall well-being of the families. After it was shown to be successful in graduating most of the participants out of extreme poverty in the northern districts of Bangladesh, the program was replicated in other parts of the world. A recent article in the Economist magazine shows that it showed favorable results in other parts of the world too, like Ethiopia, Ghana, Honduras and India. The program, though labor-intensive, is cost effective.
Such an intervention can be safely assumed to be successful in reducing extreme poverty by a large extent. Development partners, and governments should think about adopting this program, besides microfinance, to help the extreme poor.
Free Higher Education?
The idea of free higher education, at least in public universities, is being promoted by certain circles. Is that a good idea? Education undoubtedly brings a lot of personal benefit to the life of the person receiving it, and, to some degree, also brings benefit to the community. Because of higher education, a person personally benefits by earning a higher income and leading a better standard of living. Society too benefits from having a better educated workforce, higher tax collection, less petty crime and better health.
If society gets more benefit than the individual receiving education, then it might make sense to subsidize education of that individual. However, this may not be true for all individuals. In many cases, the individual benefit from education can exceed the societal benefit. In that case, it may not be beneficial for society to fully subsidize the education of such individuals.
Lets look at an example to make it clearer. Suppose a poor state, in the hopes of having an educated workforce, makes higher education free for all the residents of that state. Now, every individual has an incentive to go for higher education. However, once they are educated, there is no bar that prevents them from moving to another state or country in search of higher pay. So, the poor state spent all its resources to educate the youth, but may not have enough sway to keep them in the state once they graduate.
What if the whole country instituted free higher education, at least in public universities. A much clichéd term in economics is "there is no such thing as a free lunch." If higher education is made free to students, someone needs to pay for it. The only way of doing it is by raising taxes, which may not be popular among the people. Besides, if something is given out for free, people may start perceiving that the quality is low (which may not be true). So, to signal that one is of higher caliber in terms of skills, students who believe they have the ability will go to private schools and pay the fee. If students believe that they have the potential to earn more if they attend a private university, they will continue to take loans and go to private schools, instead of attending the free public universities.
Therefore, in theory, free higher education sounds good. But if implemented, there might be some negative consequence.
If society gets more benefit than the individual receiving education, then it might make sense to subsidize education of that individual. However, this may not be true for all individuals. In many cases, the individual benefit from education can exceed the societal benefit. In that case, it may not be beneficial for society to fully subsidize the education of such individuals.
Lets look at an example to make it clearer. Suppose a poor state, in the hopes of having an educated workforce, makes higher education free for all the residents of that state. Now, every individual has an incentive to go for higher education. However, once they are educated, there is no bar that prevents them from moving to another state or country in search of higher pay. So, the poor state spent all its resources to educate the youth, but may not have enough sway to keep them in the state once they graduate.
What if the whole country instituted free higher education, at least in public universities. A much clichéd term in economics is "there is no such thing as a free lunch." If higher education is made free to students, someone needs to pay for it. The only way of doing it is by raising taxes, which may not be popular among the people. Besides, if something is given out for free, people may start perceiving that the quality is low (which may not be true). So, to signal that one is of higher caliber in terms of skills, students who believe they have the ability will go to private schools and pay the fee. If students believe that they have the potential to earn more if they attend a private university, they will continue to take loans and go to private schools, instead of attending the free public universities.
Therefore, in theory, free higher education sounds good. But if implemented, there might be some negative consequence.
Wednesday, August 19, 2015
A Successful Economic Zone - the Research Triangle Park of North Carolina
The success of economic zones may not be guaranteed, but there are certain instances where such zones thrived against all odds. One such example is the Research Triangle Park, located in the state of North Carolina, USA. The Research Triangle Park, or RTP, is one of the best examples where government, academia and industry collaborated together to create a research center that soon turned into a center of excellence.
The RTP is surrounded by 3 world-renowned research universities - Duke University, University of North Carolina at Chapel Hill and North Carolina State University. It is built on 7000 acres of land and has around forty thousand individuals working in more than 200 research centers. It has also become a great place to live, according to this Forbes article, which attracts more people to move to the region. The RTP has been so successful that the government of the state of North Carolina is creating some more research parks following the RTP model. One such center is near Charlotte and is called the North Carolina Research Campus.
One of the prime reasons why the RTP has flourished is that academia, industry and the public sector worked together in unison to make the Park successful. The universities taught courses and majors that the industrial sector demanded and employed, and the public sector provided the land and the necessary infrastructure for the research centers to set up. As more industries were attracted to the region because of the availability of skilled workforce and business-friendly environment, the youth in that area were also encouraged to pursue higher education.
Another important aspect about RTP is that is houses hi-tech research centers that requires skilled workforce. Labor-intensive manufacturing industries are not present in the area. To remain competitive, the region needs to continue to produce a skilled workforce. With a large number of renowned universities all round North Carolina, that may not be a problem in the foreseeable future. Another reason why the Park is flourishing is because it focuses on hi-tech research, something that we need now and in the future.
The success of such an economic zone shows the importance to have educational centers that produce skilled workforce.Simply providing tax incentives and subsidized land is not enough. Actually, North Carolina is an example where the prevalence of high state income taxes do not deter companies from moving to RTP, or encourage them to exit. This is because the benefits of the availability of skilled workforce outweighs the cost of tax. Therefore, if governments want to create successful economic zones, they should consider setting up universities/technical colleges/training institutes near those zones, that produce workforce the zone needs. This can increase the changes of success of an economic zones.
The RTP is surrounded by 3 world-renowned research universities - Duke University, University of North Carolina at Chapel Hill and North Carolina State University. It is built on 7000 acres of land and has around forty thousand individuals working in more than 200 research centers. It has also become a great place to live, according to this Forbes article, which attracts more people to move to the region. The RTP has been so successful that the government of the state of North Carolina is creating some more research parks following the RTP model. One such center is near Charlotte and is called the North Carolina Research Campus.
One of the prime reasons why the RTP has flourished is that academia, industry and the public sector worked together in unison to make the Park successful. The universities taught courses and majors that the industrial sector demanded and employed, and the public sector provided the land and the necessary infrastructure for the research centers to set up. As more industries were attracted to the region because of the availability of skilled workforce and business-friendly environment, the youth in that area were also encouraged to pursue higher education.
Another important aspect about RTP is that is houses hi-tech research centers that requires skilled workforce. Labor-intensive manufacturing industries are not present in the area. To remain competitive, the region needs to continue to produce a skilled workforce. With a large number of renowned universities all round North Carolina, that may not be a problem in the foreseeable future. Another reason why the Park is flourishing is because it focuses on hi-tech research, something that we need now and in the future.
The success of such an economic zone shows the importance to have educational centers that produce skilled workforce.Simply providing tax incentives and subsidized land is not enough. Actually, North Carolina is an example where the prevalence of high state income taxes do not deter companies from moving to RTP, or encourage them to exit. This is because the benefits of the availability of skilled workforce outweighs the cost of tax. Therefore, if governments want to create successful economic zones, they should consider setting up universities/technical colleges/training institutes near those zones, that produce workforce the zone needs. This can increase the changes of success of an economic zones.
Saturday, August 8, 2015
The lure of creating Special Economic Zones (SEZ)
Special Economic Zones (SEZs), in a nutshell, are pockets of investors' paradise in a region or a country. Governments try to provide as much facilities - such as tax breaks, subsidies in buying land or constructing factories, or a commitment to train the required manpower - to attract investors to a particular area. With increased investment, politicians, policymakers and economists believe that it will create enough economic spillovers to spur economic development in the region. Eventually, the whole region can get industrialized, creating much wealth for the citizens of the region.
Because of this belief, many countries are rushing into creating SEZs. For example, just India is creating around 200 SEZs. Politicians promise large influx of future employment opportunities to locals, which makes the locals happy. There is large-scale investment in infrastructure that shows economic activity in the region. However, the long-run impact is mixed at best. This Economist article shows that most SEZs fail, and there are only a few successful SEZs. Politically, they may sound great, but economically, they may not be the right way to go.
This is mainly because SEZs do not exist in a bubble. Yes, they get special privileges from the government, but these privileges can create distortions within the economy. If I am a local investor, and region A has an SEZ and region B in the same country does not, then I would be more willing to invest in region A. Subsequently, there is more movement of migrant workers to region A. So, the rest of the country can become economically stagnant, while the SEZ region grows.
However, the above scenario can only happen if the SEZ is successful. If the SEZ fails to attract investment from locals and abroad, then all the capital used to set up the SEZ will go to waste. Besides, with the ease at which factories nowadays can locate from one country to another, if an SEZ loses its competitive advantage, it will makes investors flee, creating a lot of unemployment as a consequence.
So what is the best direction for industrialization? Instead of creating pockets of special zones, governments can take a more holistic approach and try to improve the investment climate of the whole country. If governments work to reduce bureaucracy, simplify registration, and invest in creating a resourceful workforce, investors will be willing to invest in the country. If the government wants to give a 'carrot' to foreign investors, it can do so by promoting that workers in the country are educated and efficient, the government is efficient and property rights are strictly enforced. These factors can encourage more investment that actually adds value to the local economy, rather than attract investment that is quick to leave the minute any facilities diminish.
Because of this belief, many countries are rushing into creating SEZs. For example, just India is creating around 200 SEZs. Politicians promise large influx of future employment opportunities to locals, which makes the locals happy. There is large-scale investment in infrastructure that shows economic activity in the region. However, the long-run impact is mixed at best. This Economist article shows that most SEZs fail, and there are only a few successful SEZs. Politically, they may sound great, but economically, they may not be the right way to go.
This is mainly because SEZs do not exist in a bubble. Yes, they get special privileges from the government, but these privileges can create distortions within the economy. If I am a local investor, and region A has an SEZ and region B in the same country does not, then I would be more willing to invest in region A. Subsequently, there is more movement of migrant workers to region A. So, the rest of the country can become economically stagnant, while the SEZ region grows.
However, the above scenario can only happen if the SEZ is successful. If the SEZ fails to attract investment from locals and abroad, then all the capital used to set up the SEZ will go to waste. Besides, with the ease at which factories nowadays can locate from one country to another, if an SEZ loses its competitive advantage, it will makes investors flee, creating a lot of unemployment as a consequence.
So what is the best direction for industrialization? Instead of creating pockets of special zones, governments can take a more holistic approach and try to improve the investment climate of the whole country. If governments work to reduce bureaucracy, simplify registration, and invest in creating a resourceful workforce, investors will be willing to invest in the country. If the government wants to give a 'carrot' to foreign investors, it can do so by promoting that workers in the country are educated and efficient, the government is efficient and property rights are strictly enforced. These factors can encourage more investment that actually adds value to the local economy, rather than attract investment that is quick to leave the minute any facilities diminish.
Wednesday, August 5, 2015
Competency-Based Education System and MOOCs
Education has normally been delivered through lectures, where an instructor lectures pupils on a specific subjects. This model is prevalent from Kindergarten till most of undergraduate/graduate school. Only when a student is writing a thesis or dissertation is when a student works closely with a mentor or advisor. Individualized attention, where a teacher just has one or two students, is rare, unless a student or a parent specifically hires a tutor or instructor to teach a student. Nonetheless, education is a very labor-intensive industry, and it requires more human than capital for it to be effecive. However, there is a lot of discussion about changing this model of delivering education, especially in the undergraduate level.
There are two, somewhat divergent models being promoted to educate students at the undergraduate level. One is termed as MOOC (Massive Open Online Course). A number of universities like Stanford University and MIT are providing MOOC courses. Seeing the potential of growth, some commercial enterprises like Coursera, Udemy and Udacity have started to provide online courses for free. In these websites, a number of courses are offered for free. Students can view the lectures and then take and exam to get a certificate of competency in that course.
The other is called competency-based education, spearheaded by Western Governors University. In this model, the student tries to complete a major in his or her own pace, and there are mentors to guide the student to complete the degree. It is more of a mentor-student model where the mentor makes sure that the student does not fall behind; however, the student is expected to finish all the coursework, and take the required competency exam in order to pass the course. However, a big question here is whether this mentor-student model can be scaled up while keeping costs low.
These models of education are emerging because of the belief that the current higher education system is either too expensive for a large number of students, or is inflexible for working students. Although online education is trying to reach out to the largest number of students at a minimum cost, it doesn't provide some of the benefits that a traditional university offers. As an instructor in a traditional university, I know that much of the learning takes place outside of classroom. Traditional universities provide students huge opportunities to network, build resumes, take part in extra-curricular activities and be aware of the world around them. Variants of the traditional university model tend to teach students one-on-one without much emphasis of building other characteristics required for succeeding in one's professional life. For MOOC and competency-based education to succeed, attempts need to be made so that they complement the traditional universities, rather than substitute them. This way, students can get a true education, rather than a checklist of ideas that they memorized/mastered.
There are two, somewhat divergent models being promoted to educate students at the undergraduate level. One is termed as MOOC (Massive Open Online Course). A number of universities like Stanford University and MIT are providing MOOC courses. Seeing the potential of growth, some commercial enterprises like Coursera, Udemy and Udacity have started to provide online courses for free. In these websites, a number of courses are offered for free. Students can view the lectures and then take and exam to get a certificate of competency in that course.
The other is called competency-based education, spearheaded by Western Governors University. In this model, the student tries to complete a major in his or her own pace, and there are mentors to guide the student to complete the degree. It is more of a mentor-student model where the mentor makes sure that the student does not fall behind; however, the student is expected to finish all the coursework, and take the required competency exam in order to pass the course. However, a big question here is whether this mentor-student model can be scaled up while keeping costs low.
These models of education are emerging because of the belief that the current higher education system is either too expensive for a large number of students, or is inflexible for working students. Although online education is trying to reach out to the largest number of students at a minimum cost, it doesn't provide some of the benefits that a traditional university offers. As an instructor in a traditional university, I know that much of the learning takes place outside of classroom. Traditional universities provide students huge opportunities to network, build resumes, take part in extra-curricular activities and be aware of the world around them. Variants of the traditional university model tend to teach students one-on-one without much emphasis of building other characteristics required for succeeding in one's professional life. For MOOC and competency-based education to succeed, attempts need to be made so that they complement the traditional universities, rather than substitute them. This way, students can get a true education, rather than a checklist of ideas that they memorized/mastered.
Friday, July 31, 2015
Inclusive Economic Development
Rising incomes of the average citizen always seems like a great achievement for any government. Policymakers and economists are all in arms about trying to raise and/or sustain economic growth of a country or a region. Economic growth, put simply, is the increase in the average income of a region or a country. The belief is that with rising incomes, families become wealthier, and can afford more and better-quality good and services, which then can lead to economic development.
However, one flaw in this belief is that it puts too much emphasis on the notion that rising incomes is necessary for prosperity. Other important things need to be put in place to ensure that economic development, not just economic growth, is taking place. It is economic development that leads to prosperity, not just rising incomes due to economic growth. Besides rising incomes, other components of that promotes economic development are (the list is not exhaustive):
1. better access to healthcare that makes life expectancy longer and improves the quality of life.
2. improvements in the educational attainment of individuals, with easy access for all
3. better access to fresh, unadulterated food
4. ability of the citizens to life in a unpolluted or minimally-polluted environment. Ensure that environmental damage is kept to a minimum.
5. excellent infrastructure facilities (roads, railways, air travel and internet)
6. ensure all citizens have equal rights
7. improvements in the governance, law enforcement and securing property rights. Reduction in corruption. Ensure transparency in government.
Many other factors can be added to the list. Different indicators, published by different international and donor organizations, measure and rank countries based on each of these indicators. The UNDP's Human Development Index combines income, education and life expectancy together to create one single index that shows the development of the country.
Instead of just focusing on raising income levels, developing countries should also focus on improving these seven indicators. The Millennium Development Goals tried to promote economic development in poor countries by promoting human development, but many countries failed to achieve the goals. Thus, international organizations and developing countries should make economic development their core mission to achieve prosperity, not just economic growth. This will enhance the quality of life of the average citizens, while making their incomes higher. This simple thought question shows the importance of overall development in a country - "What's the use of having a high income if most of it goes to health expenses because of the acute smog in the city where the person lives?"
Governments should start to focus on economic development, not economic growth to make their country a better place.
Saturday, July 25, 2015
Social Business
The Nobel Prize winning economist from Bangladesh, Dr. Muhammad Yunus, has been promoting the concept of "Social Business" around the world. He has written a book explaining in details the concept behind social business and how it can operate and sustain. Briefly, a social business can be summarized by these points:
1. it is an enterprise that produces a good for the benefit of the society
2. the primary motive of the business is not profit maximization, but to benefit the society
3. the organization is run as a non-profit, and any profit that is earned is either invested to make the social good better, or spent for the benefit of the local community.
4. investors can invest in the firm, and they need to be paid back along with some interest.
Besides producing a product that benefits a society - like Danone producing nutritious yogurt in collaboration with Grameen Bank in Bangladesh - the social business provides employment to the locals, and improves the community by investing any profits earned by the firm. Investors will invest just as if they are giving money to a charity, except this time the investor will recover his/her investment, along with some profits. Dr. Yunus goes in depth in the book how a firm can raise capital from investors.
In short, a social business is a concern that is not run by profit-motive, but for the benefit of the society. If this idea catches on, it can change the concept of charity. If charitable organizations were converted into social businesses, then they could invest charitable donations to produce a good that not only benefits the region, but also improves the local community. Thus this idea needs to grow. My one concern is the long term continuity of the idea of social business. If the idea becomes a worldwide phenomenon, then it can bring a huge improvement in all parts of the world.
The one important thing that will help the concept of social business to grow is to keep the idea of profit maximization away from social businesses. Even if the social business has the potential to become very profitable, the owners should refrain from changing the mission and vision of the firm.
1. it is an enterprise that produces a good for the benefit of the society
2. the primary motive of the business is not profit maximization, but to benefit the society
3. the organization is run as a non-profit, and any profit that is earned is either invested to make the social good better, or spent for the benefit of the local community.
4. investors can invest in the firm, and they need to be paid back along with some interest.
Besides producing a product that benefits a society - like Danone producing nutritious yogurt in collaboration with Grameen Bank in Bangladesh - the social business provides employment to the locals, and improves the community by investing any profits earned by the firm. Investors will invest just as if they are giving money to a charity, except this time the investor will recover his/her investment, along with some profits. Dr. Yunus goes in depth in the book how a firm can raise capital from investors.
In short, a social business is a concern that is not run by profit-motive, but for the benefit of the society. If this idea catches on, it can change the concept of charity. If charitable organizations were converted into social businesses, then they could invest charitable donations to produce a good that not only benefits the region, but also improves the local community. Thus this idea needs to grow. My one concern is the long term continuity of the idea of social business. If the idea becomes a worldwide phenomenon, then it can bring a huge improvement in all parts of the world.
The one important thing that will help the concept of social business to grow is to keep the idea of profit maximization away from social businesses. Even if the social business has the potential to become very profitable, the owners should refrain from changing the mission and vision of the firm.
Friday, July 17, 2015
Thoughts on Global Migration
Humans have always been on the move. One of the first professions adopted by humans was hunter-gatherers, which required them to move from place to place in search of food, water and shelter. Migration has populated different corners of the world, and have introduced ideas from one part of the world to another. This trend continues today - we see people moving to places where they have a comparative advantage. However, countries and regions have been trying to slow the pace of international migration. As legal migration, whether temporary or permanent, becomes more difficult, potential migrants have been taking dangerous routes to reach their destination countries. In recent years, we have read in the news about Rohingya boat people trying to escape persecution in Burma, Africans and Syrians trying to cross the Mediterranean to reach Europe, and a large number of children from Central America trying to escape to the US. The journey for a lot of these migrants is not easy - for example, Australia has been detaining asylum seekers in Papua New Guinea before deporting them. Dangerous migration is not only undertaken by those who are persecuted, but also by economic migrants. These economic migrants just don't move from developing to developed countries, but also go the other way round.
Moving from place to place seems to be ingrained in us, so it would be futile to try to stop the flow of migration. Some countries are more willing to accept richer and/or skilled migrants. However, semi-skilled or unskilled workers can add some economic benefit to their destination countries. A new paper by Michael Clemens of Center for Global Development shows that existing barriers to migration cost the world trillions of dollars in terms of lost economic opportunities. Besides, those who are escaping persecution in their home countries need protection in a different country. Thus, there needs to be a more systematic policy that assists the inflow of economic migrants and asylum seekers from the developing to the developed world. The International Organization for Migration could take a more active role in facilitating the process of moving migrants, both economic and persecuted, from one country to another. Developed countries can issue more temporary work visas to facilitate migration. This would help to reduce people taking dangerous routes to move to the country of their choice.
Moving from place to place seems to be ingrained in us, so it would be futile to try to stop the flow of migration. Some countries are more willing to accept richer and/or skilled migrants. However, semi-skilled or unskilled workers can add some economic benefit to their destination countries. A new paper by Michael Clemens of Center for Global Development shows that existing barriers to migration cost the world trillions of dollars in terms of lost economic opportunities. Besides, those who are escaping persecution in their home countries need protection in a different country. Thus, there needs to be a more systematic policy that assists the inflow of economic migrants and asylum seekers from the developing to the developed world. The International Organization for Migration could take a more active role in facilitating the process of moving migrants, both economic and persecuted, from one country to another. Developed countries can issue more temporary work visas to facilitate migration. This would help to reduce people taking dangerous routes to move to the country of their choice.
Sunday, June 28, 2015
Can Microfinance End Extreme Poverty?
A recent news article in the Guardian newspaper talked about the "microfinance delusion." In that article, Jason Hickel, an anthropologist of the London School of Economics, argues that microfinance is not as effective as believed by many in reducing the incidence of extreme poverty across the world. In fact, according to him, it can even exacerbate poverty - mainly because (i) those loans are used for consumption, (ii) the businesses opened using the funds may not have sufficient demand, and (iii) the only winners are the lenders.
There are some issues with his arguments. The poor, just like the wealthy, also need access to finance to buy consumer goods, open new business, or protect themselves from negative shocks (like hospital fees, recovery from natural disasters, etc.). Besides providing access to finance to the poor, many microfinance organizations also educate the poor about the laws of the land, their rights, and what services they can access from the government (for example, BRAC). Besides providing microcredit, many microfinance firms also provide services such as savings scheme, insurance, and assistance with asset building. Not all businesses succeed, and so it can be expected that not all businesses opened using microcredit funds will succeed. But the more important thing here is that the poor have an access to finance; they have the ability to get a loan from an organization, instead of depending upon loan sharks.
That leads to the subject of interest rates charged by the microfinance institutions. The rate is much higher than that charged by traditional banks. Advocates of microfinance say that this high rate is justified because the institutions are very labor-intensive, as the businesses opened by the borrowers may require more oversight than normal. This problem can be solved by creating guidelines by national government on how much interest can be charged by these institutions.
However, one thing Dr. Hickel does mention in that article is that "microfinance will never work until we address the background conditions that produce poverty in the first place." This is the only plausible argument that I find in his argument against microfinance. Without proper institutions and knowledge about rights and responsibilities, microfinance, or any other poverty-alleviation interventions, will fail. For example, providing funds to women to open businesses will have little impact if women have societal barriers in conducting business. In that case, is microfinance really at fault? I don't think so. Other social and cultural norms need to change in order to make it effective. Alongside providing microcredit to borrowers, many microfinance institutions also provide education about rights and responsibilities to their borrowers, which can help them conduct their businesses.
There is no one single intervention that can eradicate poverty. Poverty is multidimensional in nature, and there are many factors - monetary, non-monetary, social and cultural norms - that can put a person in a poverty trap. Microfinance is one of the many ways that try to bring people out of extreme poverty, but it cannot solve the problem of extreme poverty just by itself. It provides a much needed access to finance by the poor. Governments should not rely solely on microfinance to eradicate poverty. Health, institutions, education and infrastructure needs to be improved in tandem with providing access to finance to the poor.
I would also like to add that microfinance facilities do help to improve certain intangibles in a person's life. For example, access to finance can allow a person to enhance their self-respect. It can increase the empowerment of those marginalized in society. It can allow people to consume products that they may not be able to under normal circumstances. Microfinance can make the marginalized feel that they are members of the broader community. In these respects, microfinance can help to enhance the quality of life to a certain extent.
There are some issues with his arguments. The poor, just like the wealthy, also need access to finance to buy consumer goods, open new business, or protect themselves from negative shocks (like hospital fees, recovery from natural disasters, etc.). Besides providing access to finance to the poor, many microfinance organizations also educate the poor about the laws of the land, their rights, and what services they can access from the government (for example, BRAC). Besides providing microcredit, many microfinance firms also provide services such as savings scheme, insurance, and assistance with asset building. Not all businesses succeed, and so it can be expected that not all businesses opened using microcredit funds will succeed. But the more important thing here is that the poor have an access to finance; they have the ability to get a loan from an organization, instead of depending upon loan sharks.
That leads to the subject of interest rates charged by the microfinance institutions. The rate is much higher than that charged by traditional banks. Advocates of microfinance say that this high rate is justified because the institutions are very labor-intensive, as the businesses opened by the borrowers may require more oversight than normal. This problem can be solved by creating guidelines by national government on how much interest can be charged by these institutions.
However, one thing Dr. Hickel does mention in that article is that "microfinance will never work until we address the background conditions that produce poverty in the first place." This is the only plausible argument that I find in his argument against microfinance. Without proper institutions and knowledge about rights and responsibilities, microfinance, or any other poverty-alleviation interventions, will fail. For example, providing funds to women to open businesses will have little impact if women have societal barriers in conducting business. In that case, is microfinance really at fault? I don't think so. Other social and cultural norms need to change in order to make it effective. Alongside providing microcredit to borrowers, many microfinance institutions also provide education about rights and responsibilities to their borrowers, which can help them conduct their businesses.
There is no one single intervention that can eradicate poverty. Poverty is multidimensional in nature, and there are many factors - monetary, non-monetary, social and cultural norms - that can put a person in a poverty trap. Microfinance is one of the many ways that try to bring people out of extreme poverty, but it cannot solve the problem of extreme poverty just by itself. It provides a much needed access to finance by the poor. Governments should not rely solely on microfinance to eradicate poverty. Health, institutions, education and infrastructure needs to be improved in tandem with providing access to finance to the poor.
I would also like to add that microfinance facilities do help to improve certain intangibles in a person's life. For example, access to finance can allow a person to enhance their self-respect. It can increase the empowerment of those marginalized in society. It can allow people to consume products that they may not be able to under normal circumstances. Microfinance can make the marginalized feel that they are members of the broader community. In these respects, microfinance can help to enhance the quality of life to a certain extent.
Saturday, June 27, 2015
Air Pollution in Dhaka, Bangladesh
It is heartening to see that the economy of
Bangladesh is growing at around 6 percent annually, buoyed by a healthy
garments sector and strong remittance inflows from the Bangladeshi diaspora.
The rising incomes of Bangladeshis is also fueling a construction boom not only
in the major cities, but in many for the smaller towns and villages dotted
across the country. The population is also demanding more private
transportation in the form of motor-cycles and cars. All this is undoubtedly
also creating a lot of air and water pollution in the country, the negative
externalities that reduce the quality of life in Bangladesh. Already, the World
Health Organization has ranked Bangladesh as one of the worst countries in theworld in terms of urban air quality. The government needs to ensure that growth can
continue, while keeping such negative externalities at a minimum.
What are negative externalities? According to the
textbook definition, they are the by-product of an activity that negatively
affects the people not directly involved in that activity. For example, the
factory spewing out pollutants in the air can cause respiratory ailments to the
people who live around that factory. If growth continues without accounting for
the sustainability of the environment, then these negative externalities can
disrupt the normal functioning of life, put additional medical cost on
families, and lower the quality of life. For example, a New York Times articlein July 14, 2013 highlighted
the plight of school children at Genda Government Primary School in Savar,
where the stench of the effluents from the surrounding factories severely
affects the ability of students to concentrate in their studies. This may be a
comical concept for a Bengali drama, but for the residents of those areas, the
constant stench can severely disrupt their quality of life.
And it is just not the stench in Savar or Hazaribagh
that are considered negative externalities in Bangladesh. The Air Quality
Management Project (AQMP) funded by the government of Bangladesh and the World
Bank estimated at 15,000 premature deaths, along with millions of cases of
pulmonary, neurology and respiratory illnesses occurs just in Dhaka due to the
poor air quality in the city. According to the World Health Organization, if
particulate matter in the air rises above 20 micrograms per cubic meter (mcm),
then it is considered hazardous. However, in Dhaka, the particulate matter can be as high as 463 mcm during the dry winter months. Another World Bank study found that almost 40 percent of the air particles in Dhaka’s air are coming from the brick kilns that surround the city, while another 20 percent comes from the road dust in Dhaka’s street.
In my economics class, I ask my students whether
they want to be rich but live in a city with high levels of pollution, or
sacrifice a part of their income and live in a city with cleaner air and water.
Bangladesh also needs to ask this question. Economic growth can increase the
money income of Bangladeshis, but if they have to spend a large portion of
their income on treating their respiratory illnesses rather than enjoy consumer
products, or have to live a shorter lifespan, then what good is that life? If
the rivers become too toxic for the fish to survive, then what will happened to
the thousands of fishermen whose lives depend upon this sector? Thus, the
government must ensure that the air and water quality are improved. As most of
the air pollutants in Dhaka come from brick kilns and road dusts, steps can be
taken to encourage brick kiln owners to adopt cleaner technologies. Banning
brick kilns will not help as the government has already faced opposition, but
subsidizing the use of cleaner technology and encouraging brick kiln owners to
adopt them can help clean up the air in Bangladesh by a large extent. Also,
watering the major roads during the dry season can help to prevent road dust
from floating in the air. Similarly, the
rivers and canals of Bangladesh needs to be cleaned so that the water is
potable and fish can survive in them. Effluents need to be piped to a cleaning
facility so that they do not pollute the waterways.
Saturday, June 20, 2015
What can we do to help the poor?
We normally leave it to the governments to take charge of alleviating poverty. However, our small efforts can help to promote inclusive growth and alleviate poverty, both in our neighborhood and globally. Our small efforts collectively can have a huge effect on the lives of millions.
In our neighborhoods, there are a number of charitable organizations/volunteer groups that help the poor and needy. We can volunteer at those organizations, or make monthly donations to them. A simple search on a search engine can list a number of charitable organizations in our area. Organizations like Habitat for Humanity, Kiwanis Club, and local church groups are great places to volunteer to help those in the local community.
Internationally, there are a large number of organizations doing commendable work to help the poor. Some of those organizations (the list is by no means exhaustive) are:
1. World Health Organization
2. UNICEF
3. Save the Children
4. Care
5. BRAC
6. Grameen Bank
7. Kiva
8. Red Cross
9. The Malala Fund
10. ...... and many more
The advantage of giving money to our local or foreign charities is that most of the money goes directly to the benefit of those in need. Less money is lost in the way as it moves from our pockets to those who are in need.
The donations need not be large, one time amounts. If we all donate $5 or $10 per month to these organizations, we can create a world of difference.
Instead of waiting for world leaders to take actions to reduce poverty, we all can do our small part to make extreme poverty history in this world.
In our neighborhoods, there are a number of charitable organizations/volunteer groups that help the poor and needy. We can volunteer at those organizations, or make monthly donations to them. A simple search on a search engine can list a number of charitable organizations in our area. Organizations like Habitat for Humanity, Kiwanis Club, and local church groups are great places to volunteer to help those in the local community.
Internationally, there are a large number of organizations doing commendable work to help the poor. Some of those organizations (the list is by no means exhaustive) are:
1. World Health Organization
2. UNICEF
3. Save the Children
4. Care
5. BRAC
6. Grameen Bank
7. Kiva
8. Red Cross
9. The Malala Fund
10. ...... and many more
The advantage of giving money to our local or foreign charities is that most of the money goes directly to the benefit of those in need. Less money is lost in the way as it moves from our pockets to those who are in need.
The donations need not be large, one time amounts. If we all donate $5 or $10 per month to these organizations, we can create a world of difference.
Instead of waiting for world leaders to take actions to reduce poverty, we all can do our small part to make extreme poverty history in this world.
Saturday, June 13, 2015
South Asia Regional Integration
South Asia is a region encompassing the
countries of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and
Sri Lanka. The region is economically, culturally, linguistically and geographically diverse,
which is why the region has been aptly called a sub-continent. Very little binds the region together, except probably a common history of colonization by the British. The region has been the fastest growing region in the world in 2016; yet it also houses the largest number of poor in the world. However, much of the growth is because of the high growth rate that India will experience in the next couple of years.
Although South Asia is home to 1.6 billion people and has a combined GDP of about $2.4 trillion, most of it is concentrated in India (population of 1.2 billion and GDP of $1.8 trillion). Compared to India, the other South Asian countries are relatively small in population and GDP size. The region is also one of the least integrated in the world - intra-regional trade accounts for only about 4 percent of the total trade of South Asia in 2011. The South Asian countries are more inclined to trade with non-South Asian countries than with their neighbors.
Development partners have recognized the importance of regional integration in South Asia, and so, there is a push for greater regional integration among South Asian countries. Since India is the largest country in the region, it is expected that most of the intra-South Asia trade will happen between India and the rest of the South Asian nations. Also, India is by far, the largest country by GDP in the region, so other countries may be wary of opening up too much, fearing that their local industries might be overwhelmed by Indian products. Thus, it would be a better for these nations to cooperate and produce goods together and then export them to the rest of the world. For example, Bangladesh is the second largest garments exporter in the world, and India and Pakistan are large cotton producers. If the region were integrated, cotton could be transported by ship/train from Pakistan/India directly to Bangladesh. Hydro-power can be produced in northern Pakistan, Nepal or Bhutan and then transmitted across the region. Colombo port could be a transportation hub for all of South Asia shipping goods from the region to the rest of the world. The possibilities are endless. The region can grow rich together and concerted efforts can lift millions of South Asians out of poverty.
There are some steps that are being taken to increase connectivity among some of the South Asian nations. Nepal, Bhutan, Bangladesh and India are agreeing on a transportation deal that will facilitate the movement of vehicles between these four countries. This can help Nepal and Bhutan to use Bangladeshi seaports to export their goods abroad. However, the progress is slow. The region should encourage more tourism among these nations, and remove different barriers to trade. It should be more open to freer flow of goods and services, and this will help the region to grow even faster and ensure a more pro-poor growth.
Although South Asia is home to 1.6 billion people and has a combined GDP of about $2.4 trillion, most of it is concentrated in India (population of 1.2 billion and GDP of $1.8 trillion). Compared to India, the other South Asian countries are relatively small in population and GDP size. The region is also one of the least integrated in the world - intra-regional trade accounts for only about 4 percent of the total trade of South Asia in 2011. The South Asian countries are more inclined to trade with non-South Asian countries than with their neighbors.
Development partners have recognized the importance of regional integration in South Asia, and so, there is a push for greater regional integration among South Asian countries. Since India is the largest country in the region, it is expected that most of the intra-South Asia trade will happen between India and the rest of the South Asian nations. Also, India is by far, the largest country by GDP in the region, so other countries may be wary of opening up too much, fearing that their local industries might be overwhelmed by Indian products. Thus, it would be a better for these nations to cooperate and produce goods together and then export them to the rest of the world. For example, Bangladesh is the second largest garments exporter in the world, and India and Pakistan are large cotton producers. If the region were integrated, cotton could be transported by ship/train from Pakistan/India directly to Bangladesh. Hydro-power can be produced in northern Pakistan, Nepal or Bhutan and then transmitted across the region. Colombo port could be a transportation hub for all of South Asia shipping goods from the region to the rest of the world. The possibilities are endless. The region can grow rich together and concerted efforts can lift millions of South Asians out of poverty.
There are some steps that are being taken to increase connectivity among some of the South Asian nations. Nepal, Bhutan, Bangladesh and India are agreeing on a transportation deal that will facilitate the movement of vehicles between these four countries. This can help Nepal and Bhutan to use Bangladeshi seaports to export their goods abroad. However, the progress is slow. The region should encourage more tourism among these nations, and remove different barriers to trade. It should be more open to freer flow of goods and services, and this will help the region to grow even faster and ensure a more pro-poor growth.
Monday, June 8, 2015
GDP in US Cities
A recent article on MarketWatch showed a map which pointed out that half the GDP of USA is concentrated in a few cities only. On first thought, it seems about right because most of the US is sparsely populated (think about the western states). I thought I should do a little more analysis to see how much this holds. I collected real GDP (chained 2009 dollars) of some of the largest metropolitan statistical areas (MSAs) of the US from the website of the Bureau of Economic Analysis (www.bea.gov). I also collected the population data of those MSAs from the Census Bureau. The data is tabulated below:
These 24 MSAs do indeed produce half the GDP of the US. If you look the population, these 24 MSAs together house about 123.5 million individuals in 2010. Thus about 40 percent of the population of the US do live in these 24 MSAs. Another way of looking is that 50 percent of the GDP of US is produced in these 24 MSAs, where 40 percent of the US population resides.
If we look at per capita GDP of these 24 MSAs, we can find that each inhabitant of these MSAs have a GDP per capita of about $66,000. The rest of the US has a GDP per capita of around $40,000 (the US average is around $50,000 in chained 2009 dollars). Thus, these 24 MSAs have a GDP per capita that's about $24,000 more than the GDP per capita of the rest of the country. This shows that the largest MSAs in the US are considerably richer in GDP per capita terms than the rest of the country. There can be a lot of reasons why this is so. There is considerable positive spillovers (more businesses opening, people learning skills from each other) that can accumulate in an area that has high population density. So, that can explain why the largest cities also have high GDP per capita.
However, this does not imply that the status quo should be maintained. To promote a more equitable growth, the governments, both federal and state, should promote growth in the smaller MSAs. Increasing business activities in the smaller MSAs could help to bridge the the income gap we see from this table. It can also promote a more balanced growth across the country, and make the county considerably richer.
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