Growth is the gateway

Empirical evidences
Empirical evidences are now in avalanche to show that around the globe, countries that attained sustained rise in GDP are also the countries that experienced a dent in poverty reduction; conversely, countries with a fall in per capiat GDP are also countries with high poverty. China appears as a glaring example. During 1985-98, the country witnessed an enviable average annual per capita growth

of 8.5 per cent while, paripassu, it observed a decline in poverty level (per cent of population living under $/day) from 45 per cent to 24 per cent. The experiences of Thailand and Indonesia seem to be no different than China. Even Bangladesh experienced a negative correlation between these two variables over a period of time. Thus, growth matters to the poor. Economists D. Dollar and A.Kraay (2001) have empirically established that high overall income growth, on average, is equally shared by all. It is being hypothesised that a one percentage point increase in per capita GDP results in a one per cent increase in the income of the bottom quintile.

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Dollar and Kaary also argued that during 1972-2000 period, over 90 per cent of the increase in income of the poor in Bangladesh, India, Thailand and 82 per cent of the increase in income in Indonesia was a result of income growth with the rest being accounted for by changes in the share of the bottom quintile in national income. Surprisingly, the authors noted, in the case of China, the share of the bottom quintile fell significantly as half over half of the gains due to income growth reversal. Even then, the income of the average person in the bottom quintile in China increased by about 170 per cent between 1971-2000 almost double the gains seen in Bangladesh !

Back to Bangladesh
According to the authors I mentioned above, the growth process in Bangladesh shows a structural break. During 1971-89 period, the annual per capita growth averaged 1.5 per cent but jumped to 3 per cent during 1990-2001. This is, perhaps, no mean an achievement given the fact that the country was born out of a bloody war, ravaged by the war woes, frequently faced with calamities of nature, man-made and mismanagement driven.

Another comforting aspect of the growth scenario is that the growth process itself has become increasingly stable. The standard deviation of per capita growth fell from 7.9 during the 1970s to 1.1 during the 1980s to 0.6 during the 1990s. Dollar and Kaary are of the view that the volatility of growth during the decades of 1980s and 1990s was among the lowest in the world. "Bangladesh is among a handful of countries that managed to avoid even a single year of negative per capiat growth since the early 1990s. Remarkable feat for an economy that is persistently hit hard by weather related adverse shocks". On a comparative scale, Bangladesh has consistently improved its growth performance since independence. Annual per capita growth averaged 1.4 per cent between 1972-2000, which is short of the performance of the median country in the world but much higher than the median low-income countries.

Could bypass
If Bangladesh had grown at the same rate as Niger between 1972-2000, income per capita in Bangladesh would have risen by 30 per cent more than the actual in 2000. Conversely, if Bangladesh had grown as China did, the average Bangladeshi could become four times richer than at the moment. That means, poverty would have come down drastically. Rise in per capita income could take care of the other indicators. While Bangladesh has gained in terms of actual growth, it has also lost in terms of the potential gains that was missed in the ocean of mismanagement. The lesson is that growth matters and mattered for Bangladesh.

Beware of crash!
Apparently appeasing though, the growth process that Bangladesh is reported to have witnessed could any time steal the celebration. Bangladesh needs to be on guard against future growth crashes. International growth experiences tend to reveal that very few countries have displayed sustained growth over a long period of time. Algeria, Cameroon, Argentina -- all have experienced a crash after a brief spell of good growth. The greasing growth at times could turn out to be gruesome in the face of poor forecasts.

Still a long way to walk!
The two economists who researched on Bangladesh economy argue that current policy and institutional arrangements appear to be consistent with an annual per capita growth of 3.7 per cent. In fact that is what Bangladesh achieved over the last decade or so.

Therefore the current policy environment should result in an economic growth rate of 5.0-5.5 per cent range. The situation would tend to keep half of the population below the poverty line. But our perennial objective is to reduce the extent of poverty and reach a level of 10-15 per cent in the medium term and eliminate poverty in the long run. If growth has a say in poverty reduction, we need to gear up growth and reach a level of no less than 7 per cent per annum with a view to making a dent to poverty.

The authors are of the view hat one of the growth-oriented policy and institutions that would warrant urgent attention for improvement is Foreign Direct Investment (FDI). "The highest pay-off areas in terms of improving growth appears to be attracting more FDI, increasing the country's capacity to benefit from its spill-over by expanding the human capital base and quality of physical infrastructure; financial sector reforms that would allow the sector to be shaped by dynamics of private competition; improvements in economic governance -- especially rule of law; and streamlining of the regulatory and administrative environment faced by business in order to reduce the cost of starting (and doing) business in Bangladesh."

Concluding observations
It follows that Bangladesh has performed well in terms of per capita GDP growth and that the rise in GDP growth helped reduce poverty. At the current institutional scenario, the maximum growth rate that can be expected is 5 - 5.5 per cent per annum. But that is not what it actually should have performed. Unless the current state of governance is drastically improved, especially the law and order, the level of corruption reduced and attitude of politicising shunned, the millennium development goal of poverty reduction has to wait on the wings for a long time.

Abdul Bayes is a Professor of Economics at Jahangirnagar University.