Download File

Economic Growth
Economic Growth
DEFINITION
 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 Growth
Introduction
 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 Growth
Human 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 Growth
Investment 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 skilled
In 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 Growth
Economy 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)-2013-14
 As 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 crops
Power 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 JulyMarch, 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.