Economic Growth

Economic GrowthDEFINITION An increase in the capacity of an

economy to produce goods and services, compared from one period of time to another.

Economic growth is usually associated with technological changes. An example is the large growth in the U.S. economy during the introduction of the Internet and the technology that it brought to U.S. industry as a whole. The growth of an economy is thought of not only as an increase in productive capacity but also as an improvement in the quality of life to the people of that economy.

Economic GrowthIntroduction Economic growth has posed an intellectual challenge ever since the

beginning of systematic economic analysis.

Adam Smith claimed that growth was related to the division of labor

Thomas Malthus developed a formal model of a dynamic growth process in which each country converged toward a stationary per capita income.

Means, death rates fall and fertility rises when incomes exceed the equilibrium level, and the opposite occurs when incomes are less than that level.

The neoclassical model of growth responded to the failure of the Malthusian model by essentially ignoring any link between population and the economy.

The evidence is now quite strong of a close link between investments in human capital and growth. Since human capital is embodied knowledge and skills, and economic development depends on advances in technological and scientific knowledge, development presumably depends on the accumulation of human capital.

Economic GrowthHuman Capital Education enrollment (proxy for human

capital), health and physical capital are important to boost the economic growth.

Human capital, fixed capital and employed labor force affect the GDP and result in unidirectional and non-unidirectional causality.

Human capital as a determinant of economic growth. Although human capital includes education, health, and aspects of “social capital”, the main focus of the present study is on education. The analysis stresses the distinction between the quantity of education — measured by years of attainment at various levels — and the quality — gauged by scores on internationally comparable examinations.

Economic GrowthInvestment in Education Education accounts for much of the improvements

in population quality. The expenditures on schooling including higher education are a substantial fraction of national income in many low income countries.

The highly skilledIn assessing population quality, it is important not to overlook the increases in the stock of physicians, other medical personnel, engineers, administrators, accountants, and various classes of research scientists and technicians (Schultz, 1979d).

The research capacity of a considerable number of low income countries is impressive. There are specialized research institutes, research units within governmental departments, industrial sector research, and on-going university research. The scientists and technicians engaged in these various research activities are university trained, some of them in universities abroad. The research areas include, among others, medicine, public health (control of communicable diseases and the delivery of health services), nutrition, industry, agriculture, and even some atomic energy research

Economic GrowthEconomy of Pakistan The economy of Pakistan is the 26th

largest in the world in terms of purchasing power parity (PPP), and 44th largest in terms of nominal GDP even though the country is sixth most populous in the world. As Pakistan has a population of over 186 million (the world's 6th-largest), thus GDP per capita is $3,149 ranking 140th in the world.

Pakistan is a developing country and has a potential to become one of the world's large economies in the 21st century. However, after decades of war and social instability, as of 2013, serious deficiencies in basic services such as railway transportation and electric power generation had developed. 

The economy has suffered in the past from internal political disputes, a fast-growing population, mixed levels of foreign investment reserves are bolstered by steady worker remittances, but a growing current account deficit. 

Pakistan Economic Survey (PES)-2013-14As highlighted recently by the

Planning Minister the three key targets are tax revenues, investment and exports. He refers to these as the TIE targets. The shortfall in these targets in 2013-14 is as follows: 

In addition, other important targets that will be missed include the GDP growth rate, rate of inflation, PSDP spending, foreign direct investment (FDI) and net foreign assistance 

Inflation , Public Finances: Budget Deficit  , Private Investment , The Stock Market , Industry  , Production of other cropsPower Sector , Education 

Pakistan Economic Survey (PES)-2013-14

Inflation It was predicted that rupee

appreciation will clearly have a salutary effect in reducing inflation. Inflation was expected to go down by up to 1.5 percentage points, falling to 7.5%. 

Rupee appreciation showed its impact on the prices for imported food items in the month of April 2014. However the trend of rising food prices

Pakistan Economic Survey (PES)-2013-14

Public Finances: Budget Deficit  An alarming feature of this

stabilization effort orchestrated by the IMF is a cut of almost 40% in PSDP expenditures by the Federal and Provincial Governments. This is one of the biggest cuts in history. 

Public debt will remain above 60% of the GDP and the revenue deficit will be large at over 2.5% of the GDP. The Government continues to violate the Fiscal Responsibility and Debt Limitation (FRDL) Act. 

Pakistan Economic Survey (PES)-2013-14

Private Investment  

The private investment in the manufacturing sector has fallen sharply by 27%. 

The Stock Market  

One of the bright spots in the economy is the buoyancy of the stock market which has risen by 29.3% between 1st of July 2013 and 31st of March 2014. But the inflow of foreign portfolio (equity) investment is only $110 million during this period.

Pakistan Economic Survey (PES)-2013-14

Industry 

Growth rate of large scale manufacturing industries have come down from 5.3% in July-February 2013-14 to 4.3% in July-March, 2013-14.

Production of other crops  The production of other (minor)

crops has fallen by 3.5% in 2013-14. The 90% reduction is due to production of fodder, fruits and vegetables. The explosion in prices of vegetables in 2013-14 is primarily due to the fall in production.

Pakistan Economic Survey (PES)-2013-14

Power Sector  

The major reason for this is that the supply of natural gas to the power sector has fallen by 8%, because of diversion of 18.5% more natural gas to the fertilizer sector. 

Despite signing of many projects and work on on-going projects total investment in the power sector is actually down by 9.1%. 

Pakistan Economic Survey (PES)-2013-14

Education

The growth in the two social sectors in Pakistan, Health and Education, has been slow according to the PES. The performance of this sector has been low due to low rates of enrolments, high dropout rates, poor teacher training programs, and poor educational standards. In the past fiscal year 2013-14, the overall education sector has shown minor improvement. The key indicators like enrollments, number of institutes and teachers have gone up for all categories except for primary education. This shows that little effort has been made to improve primary education in Pakistan which is by far the most crucial level in the education sector.