The Bangladesh Development Studies
Volume XXI, March 1993, Number 1
The Impact of Floods on Rural Real Wages in Bangladesh
By Jean-Paul Azam
This paper analyses the impact of floods on rural real wages, and hence on the welfare of the poor, taking into account the simultaneous impact on the price of rice. This analysis is applied to the case of Bangladesh. The econometric results show that floods affect rural real wages both directly and indirectly, via the price of rice. Moreover, the direct impact is shown to be instantaneous and symmetric.
Financial Development and Income Velocity of Money in Bangladesh
By M. Kabir Hassan, M. Mahmud Khan and M. Badrul Haque
This research empirically examines the determinants of income velocity of money in Bangladesh by employing a Savin-White Box-Cox parametric transformation with first-order serial autocorrelation estimation procedure.
The empirical results indicate that inflation and income variables affect velocity positively. The proxy for financial development (DD/TD) affects velocity negatively, implying that the lower the proxy, the greater the level of financial development and the higher the velocity of money. Unlike other studies, this research uses an alternative proxy for financial development, which appears to provide results consistent with prior research. The development of financial institutions remains at early stage and has not yet reached the stage when velocity-financial development relationship becomes positive.
The positive relationship between income and velocity has one important policy implication. As national income increases, the velocity tend to increase which allows the central bank to reduce money supply to control inflation without affecting the overall expenditure in the economy adversely.
The Bangladesh Development Studies
Volume XXI, June 1993, Number 2
Pricing Reforms and Divestiture in the Electricity Sector of Bangladesh
By Shahabuddin M. Hossain
In many developing countries, electricity prices, subject to controls by public sector monopolies, are significantly distorted. This in turn gives wrong signals to investigate the desirability and induces inappropriate technology choice. This paper attempts to investigate the desirability and feasibility of price reforms and divestiture with reference to the electricity sector of Bangladesh. In particular, it discusses the analytical and empirical issues relating to estimation of shadow prices of electricity uses and analyzes the impact of price reform on government revenue and income distribution. Since, electricity generation, transmission and distribution in Bangladesh are fully controlled by a public monopoly, characterized by inefficiency in its operations and chronic financial loss, a second element of the reform examined in the paper is the divestiture and privatization of some of its operations.
Impact of Incentives on Export Performance of Bangladesh: A Preliminary Assessment
By Dilip Kumar Roy
The paper makes an attempt to assess the effects of economic incentives on the responsiveness of exports on the basis of a brief review of structure of incentives and export performance. The Study relates to the period 1976/77 to 1991/92 covering sixteen years for total exports and 1981/82 to 1991/92 for commodity sector due to non-availability of certain information required for the analysis. These incentives may be broadly categorised under monetary ad fiscal policy instruments. The paper demonstrates that foreign income is an important explanatory variable for export performance. for total exports, all the economic incentives such as exchange rate, relative price, export performance benefit, rate of interest, foreign income, custom duty, sales tax, excise taxes and refunds have the expected signs and are significant. The results differ significantly for different commodities. While interest rate is negatively associated with exports of raw jute, readymade garments, handicrafts and paper products. Fiscal instruments seem to be important for engineering products, paper, newsprint and paper products to influence exports. Exchange rate depreciation have a positive effect on exports of most commodities Relative price does have a role in jute goods’ exports.
Determinants of Wage Employment and Labour Supply in the Labour Surplus Situation of Rural Bangladesh
By Rushidan Islam Rahman
Employment is supply determined in situations of full employment. In situations of underemployment, however, employment is determined by demand related factors. In such cases the labour supply function and the determinants of employment need to be analysed separately. The labour supply curve for female workers in some villages of Bangladesh was found to be horizontal (up to a point) at a given wage rate. However, the amount of employment was negatively related to wage rates because wages influenced employers’ consideration. The elasticity of employment with respect to wage rates was less than unity and thus earnings of low wage workers were lower. Some previous studies of the situation in Bangladesh and India have interpreted this negative wage employment relationship as a supply function showing negative wage elasticity. Such an interpretation is misleading and can have undesirable policy implications because there is evidence of underemployment in those study areas and in that case the relationship between wage and employment does not depict supply considerations.
National Growth Rate Method with Varying Internal Migration Rate
By Md. Mizanur Rahman
The assumption of “uniform flow of internal migration” used in Rahman (1987) is generalised in this paper for cases when the flow of internal migration is increasing or even decreasing. In particular, the cases when the migration rate is proportional to the national population or to the regional population are analysed. Procedure for estimation of the migration rate and the pure migration are given. The formula for prediction of population is also provided. As an application of the procedure, migration to the Dhaka SMA is analysed with the help of Census Data.
The Bangladesh Development Studies
Volume XXI, September 1993, Number 3
Trade Regime, Exchange Rates and Economic Incentives in Bangladesh Agriculture
By Sultan Hafeez Rahman
Agriculture is still the single-most important sector of the Bangladesh economy. However, highly protectionist policies aimed at fostering an import-substituting manufacturing sector had adverse indirect effects on the agriculture sector. High protection to the domestic manufacturing sector permitted highly overvalued exchange rates. The result was indirect taxation of agriculture and resource outflows from the sector. The paper uses a partial equilibrium approach to compute the magnitude of the implicit taxation of agriculture and related disincentives. The transfer of resources out of agriculture due to the protectionist trade and exchange rate policies is estimated at around 20 per cent of the average agricultural value added from 1986/87-1989/90.
Constraints to Diversification in Bangladesh: A Survey of Farmers’ Views
By Jeffrey Metzel and Benson Ateng
The study draws upon data collected in 1994 from 200 farm household in 10 thanas, purposively selected to represent major geographic and agro-ecological zones in the Bangladesh. The paper attempts to identify problems associated with diversified crops, based on farmers’ perceptions. More importantly, farm characteristics are examined to explain levels of crop diversity or specialization; and results from regression analyses are presented. In the latter exercise, Simpson Index of diversity as well as Rice-share Index have been used. The survey results suggest several constraints to crop diversity, such as, low profitability, high input cost, risk in selling non-rice crops, susceptibility to weather variation and pests. The Simpson Index of diversity is found to decline with farm size, implying that large farmers specialize in few crops, particularly rice and few cash crops. Among other things, proximity to towns increase crop diversity while credit is found to reduce it. The study was however unable to identify any relationship between efforts by NGOs and the degree of crop diversity on farms.
Problems and Prospects of Crop Diversification in Bangladesh
By Sajjad Zohir
Achieving crop diversification has often been stressed as a major policy objective. Yet, past policies in the agriculture sector had promoted rice cultivation at the expense of minor crops. While static profitability analyses indicate greater relative profitability of many non-cereal crops, risks in marketing these produce are found to be significantly high. More importantly, land characteristics are found to largely limit the expansion of area under these crops. Along with it, minor irrigation in Bangladesh is found to have favoured cereal production, making the crop economy less diversified. In order to achieve greater diversification in the crop sector, future policies need to facilitate exports, promote agro-processing industries, and emphasize on research to develop field channel designs that will facilitate simultaneous production of both cereals and non-cereals within the same command area. Along with these, large scale investments on flood control and drainage, continued support for canal re-excavation, and more rational planning of rural housing are called for to increase the size of suitable land.
The Bangladesh Development Studies
Volume XXI, December 1993, Number 4
Explaining Pakistan’s High Growth Performance Over the Past Two Decades: Can it be Sustained?
By Sadiq Ahmed
Pakistan’s 6.0% p.a. growth rate over the past two decades has been considered by some as a “development puzzle” because this growth performance has been accompanied by three major disconcerting factors-high fiscal and current account deficits, relatively low savings and investment rates, and poor human capital formation. Using a standard statistical growth analysis, the paper shows that, consistent with the predictions of economic theory, the main determinants of growth have been: a rapid pace of physical capital accumulation, the positive contribution of labour force growth, greater competition from external trade, and a policy of economic liberalization since 1978. The growth impact of these traditional factors was augmented by improvements in total factor productivity resulting from greater trade and other economic liberalization that has happened in Pakistan since 1978. The sustainability of this high growth performance over the medium-to-longer term in the future is, however, doubtful. The outlook for the 1990s is that both foreign and domestic real interest rates will remain significantly positive. In this situation, if Pakistan were to continue to run fiscal deficits of the same magnitude as in the past, a financial crisis is likely to emerge pretty rapidly. Using a macroeconomic consistency framework, the paper derives estimates of sustainable current account deficits (i.e., deficits that do not worsen external creditworthingess) in the range of 3% of GDP p.a. Consistent with this and the Government’s inflation target of 5% p.a., the sustainable fiscal deficits are in the range of 4.5-5% of GDP p.a. Given the need to reduce macroeconomic imbalances, the paper also concludes that a substantial adjustment effort will be needed to raise domestic saving and investment in order to ensure the consistency of these macroeconomic targets with the growth target. Lower fiscal deficits will also help reconcile the need for greater financial resource mobilization with the objective of stimulating private investment. Finally, the paper argues that Pakistan’s ability to sustain high growth rates over the longer terms will also depend upon rapid progress with human capital development
The Money Supply Multiplier in Bangladesh
By Akhtar Hossain
This paper develops a simple money multiplier model of the money supply and examines the behaviour of each of the components of the money multiplier for the period 1972 to 1993. Empirical results suggest that although the deposit-currency ratio equation is stable, the equations of the time-deposit ratio and the excess reserves-deposit ratio are unstable. Both the narrow and broad money multiplier equations are also found unstable. The paper concludes with a discussion on the implications of instability in the money multiplier for monetary policy through monetary targeting.
Human Development: Means and Ends
By Paul Streeten
This article attempts to place the UNDP’s Human Development Index in historical as well as analytical perspective by explicating its relationship with notions of “basic needs”, “opportunities”, and “functioning and capabilities”. It is pointed out that while inevitably limited and incomplete, the index has great value, in particular for showing up the inadequacies of more simple-minded indices like GNP. In discussing the reasons why human development (as defined by the HDI) is a desirable objective, a distinction is drawn between those who stress the productivity-enhancing contributions of such improvements, who are labelled the “human resource developeess”, and those (the “humanitarians”) who stress human development as an end in itself. It is pointed out that while both groups appear to have the same cause at heart, there are important differences in approach and concrete policy recommendations, e.g., the latter will put more emphasis on participation and on general as opposed to (but not exclusive of) vocational education.
The article also considers the issue of an index that will capture aspects of human freedom. While such an index is assential, the article argues, it should not be incorporated into the general HDI, but should stand on its own.
Volume XXI, March 1993, Number 1
The Impact of Floods on Rural Real Wages in Bangladesh
By Jean-Paul Azam
This paper analyses the impact of floods on rural real wages, and hence on the welfare of the poor, taking into account the simultaneous impact on the price of rice. This analysis is applied to the case of Bangladesh. The econometric results show that floods affect rural real wages both directly and indirectly, via the price of rice. Moreover, the direct impact is shown to be instantaneous and symmetric.
Financial Development and Income Velocity of Money in Bangladesh
By M. Kabir Hassan, M. Mahmud Khan and M. Badrul Haque
This research empirically examines the determinants of income velocity of money in Bangladesh by employing a Savin-White Box-Cox parametric transformation with first-order serial autocorrelation estimation procedure.
The empirical results indicate that inflation and income variables affect velocity positively. The proxy for financial development (DD/TD) affects velocity negatively, implying that the lower the proxy, the greater the level of financial development and the higher the velocity of money. Unlike other studies, this research uses an alternative proxy for financial development, which appears to provide results consistent with prior research. The development of financial institutions remains at early stage and has not yet reached the stage when velocity-financial development relationship becomes positive.
The positive relationship between income and velocity has one important policy implication. As national income increases, the velocity tend to increase which allows the central bank to reduce money supply to control inflation without affecting the overall expenditure in the economy adversely.
The Bangladesh Development Studies
Volume XXI, June 1993, Number 2
Pricing Reforms and Divestiture in the Electricity Sector of Bangladesh
By Shahabuddin M. Hossain
In many developing countries, electricity prices, subject to controls by public sector monopolies, are significantly distorted. This in turn gives wrong signals to investigate the desirability and induces inappropriate technology choice. This paper attempts to investigate the desirability and feasibility of price reforms and divestiture with reference to the electricity sector of Bangladesh. In particular, it discusses the analytical and empirical issues relating to estimation of shadow prices of electricity uses and analyzes the impact of price reform on government revenue and income distribution. Since, electricity generation, transmission and distribution in Bangladesh are fully controlled by a public monopoly, characterized by inefficiency in its operations and chronic financial loss, a second element of the reform examined in the paper is the divestiture and privatization of some of its operations.
Impact of Incentives on Export Performance of Bangladesh: A Preliminary Assessment
By Dilip Kumar Roy
The paper makes an attempt to assess the effects of economic incentives on the responsiveness of exports on the basis of a brief review of structure of incentives and export performance. The Study relates to the period 1976/77 to 1991/92 covering sixteen years for total exports and 1981/82 to 1991/92 for commodity sector due to non-availability of certain information required for the analysis. These incentives may be broadly categorised under monetary ad fiscal policy instruments. The paper demonstrates that foreign income is an important explanatory variable for export performance. for total exports, all the economic incentives such as exchange rate, relative price, export performance benefit, rate of interest, foreign income, custom duty, sales tax, excise taxes and refunds have the expected signs and are significant. The results differ significantly for different commodities. While interest rate is negatively associated with exports of raw jute, readymade garments, handicrafts and paper products. Fiscal instruments seem to be important for engineering products, paper, newsprint and paper products to influence exports. Exchange rate depreciation have a positive effect on exports of most commodities Relative price does have a role in jute goods’ exports.
Determinants of Wage Employment and Labour Supply in the Labour Surplus Situation of Rural Bangladesh
By Rushidan Islam Rahman
Employment is supply determined in situations of full employment. In situations of underemployment, however, employment is determined by demand related factors. In such cases the labour supply function and the determinants of employment need to be analysed separately. The labour supply curve for female workers in some villages of Bangladesh was found to be horizontal (up to a point) at a given wage rate. However, the amount of employment was negatively related to wage rates because wages influenced employers’ consideration. The elasticity of employment with respect to wage rates was less than unity and thus earnings of low wage workers were lower. Some previous studies of the situation in Bangladesh and India have interpreted this negative wage employment relationship as a supply function showing negative wage elasticity. Such an interpretation is misleading and can have undesirable policy implications because there is evidence of underemployment in those study areas and in that case the relationship between wage and employment does not depict supply considerations.
National Growth Rate Method with Varying Internal Migration Rate
By Md. Mizanur Rahman
The assumption of “uniform flow of internal migration” used in Rahman (1987) is generalised in this paper for cases when the flow of internal migration is increasing or even decreasing. In particular, the cases when the migration rate is proportional to the national population or to the regional population are analysed. Procedure for estimation of the migration rate and the pure migration are given. The formula for prediction of population is also provided. As an application of the procedure, migration to the Dhaka SMA is analysed with the help of Census Data.
The Bangladesh Development Studies
Volume XXI, September 1993, Number 3
Trade Regime, Exchange Rates and Economic Incentives in Bangladesh Agriculture
By Sultan Hafeez Rahman
Agriculture is still the single-most important sector of the Bangladesh economy. However, highly protectionist policies aimed at fostering an import-substituting manufacturing sector had adverse indirect effects on the agriculture sector. High protection to the domestic manufacturing sector permitted highly overvalued exchange rates. The result was indirect taxation of agriculture and resource outflows from the sector. The paper uses a partial equilibrium approach to compute the magnitude of the implicit taxation of agriculture and related disincentives. The transfer of resources out of agriculture due to the protectionist trade and exchange rate policies is estimated at around 20 per cent of the average agricultural value added from 1986/87-1989/90.
Constraints to Diversification in Bangladesh: A Survey of Farmers’ Views
By Jeffrey Metzel and Benson Ateng
The study draws upon data collected in 1994 from 200 farm household in 10 thanas, purposively selected to represent major geographic and agro-ecological zones in the Bangladesh. The paper attempts to identify problems associated with diversified crops, based on farmers’ perceptions. More importantly, farm characteristics are examined to explain levels of crop diversity or specialization; and results from regression analyses are presented. In the latter exercise, Simpson Index of diversity as well as Rice-share Index have been used. The survey results suggest several constraints to crop diversity, such as, low profitability, high input cost, risk in selling non-rice crops, susceptibility to weather variation and pests. The Simpson Index of diversity is found to decline with farm size, implying that large farmers specialize in few crops, particularly rice and few cash crops. Among other things, proximity to towns increase crop diversity while credit is found to reduce it. The study was however unable to identify any relationship between efforts by NGOs and the degree of crop diversity on farms.
Problems and Prospects of Crop Diversification in Bangladesh
By Sajjad Zohir
Achieving crop diversification has often been stressed as a major policy objective. Yet, past policies in the agriculture sector had promoted rice cultivation at the expense of minor crops. While static profitability analyses indicate greater relative profitability of many non-cereal crops, risks in marketing these produce are found to be significantly high. More importantly, land characteristics are found to largely limit the expansion of area under these crops. Along with it, minor irrigation in Bangladesh is found to have favoured cereal production, making the crop economy less diversified. In order to achieve greater diversification in the crop sector, future policies need to facilitate exports, promote agro-processing industries, and emphasize on research to develop field channel designs that will facilitate simultaneous production of both cereals and non-cereals within the same command area. Along with these, large scale investments on flood control and drainage, continued support for canal re-excavation, and more rational planning of rural housing are called for to increase the size of suitable land.
The Bangladesh Development Studies
Volume XXI, December 1993, Number 4
Explaining Pakistan’s High Growth Performance Over the Past Two Decades: Can it be Sustained?
By Sadiq Ahmed
Pakistan’s 6.0% p.a. growth rate over the past two decades has been considered by some as a “development puzzle” because this growth performance has been accompanied by three major disconcerting factors-high fiscal and current account deficits, relatively low savings and investment rates, and poor human capital formation. Using a standard statistical growth analysis, the paper shows that, consistent with the predictions of economic theory, the main determinants of growth have been: a rapid pace of physical capital accumulation, the positive contribution of labour force growth, greater competition from external trade, and a policy of economic liberalization since 1978. The growth impact of these traditional factors was augmented by improvements in total factor productivity resulting from greater trade and other economic liberalization that has happened in Pakistan since 1978. The sustainability of this high growth performance over the medium-to-longer term in the future is, however, doubtful. The outlook for the 1990s is that both foreign and domestic real interest rates will remain significantly positive. In this situation, if Pakistan were to continue to run fiscal deficits of the same magnitude as in the past, a financial crisis is likely to emerge pretty rapidly. Using a macroeconomic consistency framework, the paper derives estimates of sustainable current account deficits (i.e., deficits that do not worsen external creditworthingess) in the range of 3% of GDP p.a. Consistent with this and the Government’s inflation target of 5% p.a., the sustainable fiscal deficits are in the range of 4.5-5% of GDP p.a. Given the need to reduce macroeconomic imbalances, the paper also concludes that a substantial adjustment effort will be needed to raise domestic saving and investment in order to ensure the consistency of these macroeconomic targets with the growth target. Lower fiscal deficits will also help reconcile the need for greater financial resource mobilization with the objective of stimulating private investment. Finally, the paper argues that Pakistan’s ability to sustain high growth rates over the longer terms will also depend upon rapid progress with human capital development
The Money Supply Multiplier in Bangladesh
By Akhtar Hossain
This paper develops a simple money multiplier model of the money supply and examines the behaviour of each of the components of the money multiplier for the period 1972 to 1993. Empirical results suggest that although the deposit-currency ratio equation is stable, the equations of the time-deposit ratio and the excess reserves-deposit ratio are unstable. Both the narrow and broad money multiplier equations are also found unstable. The paper concludes with a discussion on the implications of instability in the money multiplier for monetary policy through monetary targeting.
Human Development: Means and Ends
By Paul Streeten
This article attempts to place the UNDP’s Human Development Index in historical as well as analytical perspective by explicating its relationship with notions of “basic needs”, “opportunities”, and “functioning and capabilities”. It is pointed out that while inevitably limited and incomplete, the index has great value, in particular for showing up the inadequacies of more simple-minded indices like GNP. In discussing the reasons why human development (as defined by the HDI) is a desirable objective, a distinction is drawn between those who stress the productivity-enhancing contributions of such improvements, who are labelled the “human resource developeess”, and those (the “humanitarians”) who stress human development as an end in itself. It is pointed out that while both groups appear to have the same cause at heart, there are important differences in approach and concrete policy recommendations, e.g., the latter will put more emphasis on participation and on general as opposed to (but not exclusive of) vocational education.
The article also considers the issue of an index that will capture aspects of human freedom. While such an index is assential, the article argues, it should not be incorporated into the general HDI, but should stand on its own.