• Tuesday, Sep 28, 2021
  • Last Update : 01:18 am

OP-ED: Our GDP has come a long way since its war-ravaged days

  • Published at 01:17 am January 24th, 2021
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Representational image Bigstock

To mark 50 years of Bangladesh, this series will present a set of charts each month to show the country’s economic evolution since the 1970s

We begin with GDP per capita -- a common, albeit imperfect, correlate of living standards over time and across countries. For example, couple of months ago, there was considerable media hype about Bangladesh overtaking India in GDP per capita. However, according to the World Bank’s World Development Indicator, GDP per capita was about a quarter higher in the then East Pakistan than India in 1970 (Chart 1).

The same data also suggests that GDP per capita in Pakistan’s eastern wing was less than two-thirds of that of the west in 1970, a relativity that had almost reversed by 2019. Finally, the chart also compares Bangladesh with other countries in tropical Asia.

The problem with Chart 1, however, is that this measure does not take into account price differences across time and between countries. Splicing together official data from the Bangladesh Bureau of Statistics with that of WB WDI, Chart 2 shows real GDP per capita. In 2018-19, according to the official data, every Bangladeshi on average produced (alternatively, earned) goods and services worth around Tk154,000. 

This compares with average production, and income, of about Tk50,200 in 1970. That is, after accounting for changes in prices, there has been a threefold increase in average income -- on average, a Bangladeshi today is about three times as well off than their grandparents were on the eve of the Liberation War.

Chart 2 also shows that directly as a result of the war, real GDP per person dropped by over Tk10,000. Pre-war income levels would not be reached until 1991. Pause and reflect on that for a minute: For the post-war generation, freedom must have tasted bittersweet at best! 

Chart 3 shows that real incomes fell by a fifth in the aftermath of the war. By way of comparison, this is similar in magnitude as that experienced in Iraq during 2002-04. This chart also shows that economic growth has become faster and more durable over time. Reflecting the large agriculture sector, incomes fluctuated widely from year to year even before the war, a trend that continued in the 1970s. 

Underneath the volatility, real incomes per person grew by 1% a year in the then East Pakistan and 1.5% in post-war Bangladesh. The pace accelerated to over 2% in the 1990s, and nearly 5% since the mid-2000s. 

To put that in context, at the then East Pakistani pace, it would take over seven decades for average income (and thus living standards) to double, whereas with the more recent rates, average income has more than doubled since 2003.

So, how does Bangladesh compare with neighbours when price differences are taken into account? Chart 4 shows this by using the IMF’s estimate of real GDP per capita measured in purchasing power parity terms. 

According to this estimate, the average Bangladeshi produced and earned about half as much as an average Pakistani even in the early 1990s, but the former had caught up with the latter by 2019.

On the other hand, average income was higher in Bangladesh than India in the early-to-mid 1980s, but the media headlines notwithstanding, when measured properly, the average Indian currently has a higher income than the average Bangladeshi. 

Chart 5 presents real GDP per capita in Bangladesh as percentage of that of neighbours as well as a number of advanced economies. The reference year is 2019 so as to avoid the effects of the pandemic. At that time, the average Bangladeshi had an income level, and thus a standard of living, that was only about three-quarters of that of an average Indian. 

Further, the average Vietnamese was about twice, the average Thai nearly four times, and the citizens of the rich countries about 10 times as well off as the average Bangladeshi.

Bangladesh has come far from its war-ravaged early days, even though there remain considerable challenges. More importantly, it’s important to understand what has been happening to the distribution of income underneath these averages -- have the poor benefitted as much from the growth as the rich? We will explore this next month.

Jyoti Rahman is an applied macro-economist.

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