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Growth accounting for Bangladesh

Posted in development, economic history, economics, labour, macro by jrahman on December 8, 2012

In 2011-12 (FY12), Bangladesh’s per capita GDP — in FY12 prices — was 60,000 taka a year.  This is exactly double the amount from 1995.  That year’s 30,000 taka per capita GDP was just slightly higher than the 27,000 taka recorded in 1970.  Now, this is in real terms, that is, after accounting for inflation.  After accounting for inflation, the average Bangladeshi was little better of in the early 1990s compared with 1970.  In fact, per capita GDP fell by nearly 20% as a result of the Liberation War, and the average Bangladeshi was poorer in the 1970s and 1980s compared with the pre-war period.  And then, from around the beginning of the 1990s, the economy started growing faster. 

This chart — of per capita GDP (in FY12 prices) over the past five decades — summarises the above story.

This chart tells the same story in terms of economic growth — the columns are annual real GDP growth rate (notice the big negatives in early 1970s), the line is annual average over the previous five years (note the steady uptick since the early 1990s).

An economy grows over time because of two reasons: it has more workers (labour utilisation); and its workers are more productive (labour productivity).  Formally, suppose Y denotes GDP and L denotes labour input.  Then it follows that Y = L * Y/L  , where Y/L  is labour productivity.

Labour utilisation is driven by demography, social attitudes, employment conditions etc.  Labour productivity is a function of investment, education, technology etc.  Growth accounting is the fancy word for attributing economic growth to these factors. 

A growth accounting exercise for Bangladesh was done in a paper I wrote with Asif Yusuf some time ago (I have also written about it in Forum — not to self: must do an archive of publications).  The plan is to summarise (and update) the findings of that paper over a series of posts.

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