Presentation by Dr. Vaqar Ahmed on Inclusive Growth & Sustainability at University of Lahore - 8 November 2012

1. Inclusive Growth and Sustainability
Dr. Vaqar Ahmed
Sustainable Development Policy Institute
Lecture at University of Lahore – 8 November 2012
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2. How do economies grow?
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3. Growth Strategies in Regional Economies
Country Plan Strategy Focus
Indonesia Medium Term Plan Focus on social infrastructure for creativity
2010-14 development
Thailand 10th Plan 2007-11 Opportunities for learning, increase potential of
communities by linking them in networks
Malaysia New Economic Developing quality workforce, competitive domestic
Model (launched in economy and transparent markets
2010)
China 11th Five Year Plan Promotion of independent innovation, and enhance
2006-10 social harmony
India 11th Five Year Plan Reinforces focus on basic services such as education
(2007-12) and urban development
Bangladesh Draft Plan 2011 Effective governance, promoting innovative people
for a digital Bangladesh, creating a caring society and
enhancing regional cooperation
Philippine Medium Term Plan National innovation system, market reforms,
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(2004-10) technology entrepreneurship and support to R&D

4. From Harrod Domar to Endogenous Growth
Theories Main Insights
Harrod-Domar Growth Model focuses on saving and the efficiency with
Model – 1940s which capital is used
Solow (Neoclassical) Allows for substitution between labour & capital.
Growth Model – Technology increases exogenously
1950s
Endogenous Growth – Competition and knowledge – related externalities
1980s imply increasing returns. Romer 1986; Lucas Jr. 1988.
Endogenous Growth – Knowledge spillovers lead to falling R&D costs
1990s resulting in further growth. Romer 1990; Grossman &
Helpman 1991
Endogenous Growth – Schumpeterian entry & exit, with entrants bringing
2000s new technologies, knowledge accumulation in cities
lead to growth. Aghion & Howitt 2005

5. Growth Diagnostics–Binding Constraints
Intermediation
Domestic
Availability Domestic
of Finance Savings
Foreign
Infrastructure
Entrepreneurship Social
Returns
Human
Capital
Return to
Economic Coordination
Activity Market
Failure
Information
Appropriability
Macroecono
mic Stability
Govt. Failure
Contract
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Adapted from Hausmann & Rodrik (2005) Enforcement

6. Growth Diagnostics – Binding Constraints
Intermediation
Domestic
Availability Domestic
of Finance Savings
Foreign
Infrastructure
Entrepreneurship Low incentives for “self-
Social
Returns
discovery” – information Human
Capital
Returnexternalities
to
Economic Coordination
Activity Market
Failure
Information
Appropriability
Macroecono
mic Stability
Govt. Failure
Contract
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Adapted from Hausmann & Rodrik (2005) Enforcement

7. • The Need for Growth Strategy & Reforms
• Stabilization & Adjustment
• Governance & Institutions
• Markets, Entrepreneurship & Investment Climate
• Cities & Connectivity
• Youth & Community

8. • Some Scenarios – Desired Growth Paths
• SWOT
• Demographic Challenges
• Required Growth Rate
• Returns from Reforms

9. Pakistan Economy: SWOT Analysis
• Strength: Youth bulge
• Weakness: Governance
• Opportunity: large domestic demand
• Threat: Coordination & information failures

10. Need for Rapid Economic Growth
(i) Rapid population growth increases demand:
– Pakistan adds:
• Every 1 year a New Zealand to its population;
• Every 2 years a Switzerland;
• Every 3 years a Greece;
• Every 4 years a Chile or a Netherlands; and
• Every 5 years an Australia.
– It does not accumulate capital assets at the same pace.
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11. Some criticism on Planning
Commission’s approach
• Some said:
– The strategy does not talk enough about pro-poor
interventions
– Some said it does not cater for sustainable
development
– Lets see what these are….

12. Exclusion Analysis
• What is the development process?
• Income generation process
• Empowerment

13. • Development is……….

14. • Development is……….
– Creating and investment climate and empowering
poor
• Nicholas Stern

15. Income
Physical, Human Productivity
& Social Capital
Trade Institutions
Geography

16. • But then somebody gains and some lose in the
growth process….standard critique on market
process
• This is where interventions around
empowerment become important

17. What the individual
owns:
• Assets
• Human Capital
External Constraints
• Family
Empowerment • Community (caste, religion)
• Society
• Governance
Internal Constraints
• Perceptions of own role
• Preferences
• Capacity to aspire

18. Beyond Inclusive Growth and MDGs
• Sustainable Development…..
• And the talk about Sustainable Development
Goals (SDGs)

19. Three Pillars of Sustainable Development

20. Sustainability 101
• Case study: Chitral in 1970s
• Nature of economy:
• Self-reliant  food secure  justice  social capital
• Then comes globalization (the bad one!)
• Provide irrelevant education without opportunity  brain
drain
• Sectoral reallocation away from agriculture  loss of
comparative advantage
• Ex-Chitral firms flood agriculture and industrial output
killing agriculture and low-end industry in Chitral
• In the end no agriculture, no industry for Chitral (recall
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2007 global food crisis)

21. Sustainability 101
• Now Chitral’s people migrate to cities
• Skill mismatch  exploitation in name of cheap labour
• Slums  environmental and health hazards
• Crime
• Result:
• We have destroyed production structure in rural economy
& and overloaded urban economy
• Please remember GDP is still growing
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22. Before Jumping to Remedies……
• Some questions:
• Who benefited from adopting bad forms of globalization?
• Power structure  imposed not adopted
• Why was no value attached with good form of globalization?
• Why not celebrate diversity!
• If one tries to answer these questions, one will not
blame political leadership rather ownself
• Revealed preferences
• Voted for external competition, urban living and
extravagance  choice (bigger and better)
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23. Before Jumping to Remedies……
• How to sustain extravagance  fiscal deficit?
• Where to finance subsidized production &
consumption?
• Debt
• Trade-off own natural resources
• Gas and water at throw-away prices !
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24. Now where to go from here……
• Kickstart growth  create sustainable
jobs
• Lets revisit our comparative advantage:
• Rural
• Agriculture (crop sector, livestock)
• Labour (unskilled)
• Urban
• Infrastructure
• Integrated markets
• Labour (skilled)  educated and healty
• Inequality is clear  not sustainable 24

25. Now where to go from here……
• To move towards sustainable jobs, give
rural economy what urban has
• Education with opportunity (relevant education)
• Food security and health
• How?
• Through inclusive markets and rural infrastructure
• Give large rural populations municipal services
• Need for local-area growth strategies
• Putting value on local-area production and diversity
• Not forcing Chitrali framer to go to cities for selling output
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26. But the story is not complete…
• The above mentioned is what East Asia has done e.g.
China [Rural Development Strategy] and Thailand
[Once Village One Product]  balanced growth
strategies
• But Chinese model will only kickstart growth  what
about sustainability and equity
• With local-area growth model ….need for local-area
sustainability and equity planning
• 18th Amendment to help!
• Planning Commission’s Growth Strategy important
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27. Where should we go from here?
• Any ideas for Pakistan economy?
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28. Our Advice: Go for Responsible Growth
• Restore Economic Growth  for employment
• Energy for Industry
• Water for Agriculture
• Open up competition  markets for middle class and
poor
• Rural markets  focus on human capital
• Urban markets  focus on connectivity
• Pay attention to trade restrictions
• Trade with China and India is good!  regionalism
• Respect natural resources
• Hurting environment brings natural disasters
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29. Our Advice: Who will do it
• Need for Civil Service & Accountability Reform 
Supply side capacity
• Need to strengthen civil society  Demand side
engagement
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30. Thank You
www.sdpi.org, www.sdpi.tv
vaqar@sdpi.org 30