The structural roots of development
why Pakistan is not a typical developing country
I mentioned earlier that poor countries have a natural advantage in growing fast - a force economists refer to as “convergence”. However, the promise of fast growth cannot be taken for granted. It has to be harnessed by putting in place the right environment - education, rule of law and broader protection of fundamental rights being the most important ingredients.
The promise of convergence is hence “conditional” - and there is strong empirical support for this idea. Pakistan also offers a clear example of the importance of conditional convergence. The country has failed to harness the natural growth advantage of convergence because it did not put it place the conditions necessary for fast growth. In other words, the structural roots of development have been missing.
This can most clearly be seen in the plot below that shows how Pakistan fares on four structural determinants of growth: investment, infant mortality, education and female labor force participation. The blue line plots how these four metrics vary by GDP per capita across the world. For example, as one would expect, under-5 mortality drops as countries become richer. The green dot represents Pakistan, and the vertical distance to the blue line represents the difference between Pakistan and other developing countries at similar level of GDP per capita.
What stands out in the figure above is that Pakistan is not a typical developing country. It differs systematically from countries at similar levels of income per capita. Pakistan invests a third less than the average country at its income per capita. Pakistan’s child mortality rate is way higher, and literacy rate significantly lower. Its female labor force participation rate is less than half that of developing countries at similar income level.
The net impact of these structural differences is staggering. 114,000 more children die every year in Pakistan - children who would not have died had they lived in another country with similar income level like Bangladesh. There are 17.3 million additional illiterate adults living in Pakistan - individuals who would have been literate if they had lived in another equally poor country. There should have been 16.6 million more women in the labor force if Pakistan had the average female labor force participation for its level of income.
Economic theory and history tell us that with such systematic differences with its peer group, Pakistan should have a very hard time growing - or “converging”. And this is exactly what the data shows.
The green line is Pakistan’s actual GDP per capita since 1995. The black line is what would have been Pakistan’s GDP per capita if it had grown at the average pace of other countries at similar income level. The red and orange lines represent Pakistan’s income per capita if it had grown at the same pace as Bangladesh and India respectively. The verdict is clear: Pakistan is diverging from, rather than converging to, the rest of the world.
The core reason for Pakistan’s divergence from rest of the world is that its leaders have not focused on the structural conditions necessary for growth. The focus instead has been on foreign borrowing, or some other half-baked idea driven by a broken nervous system. Unless there is structural change in the decision making process that focuses on the fundamentals, growth is unlikely to happen.
I have been checking in on your Twitter atleast twice a day to see whether you have written anything new regarding Pakistan. Your insights are remarkable and free of the myopia which so often clouds the compromised bureaucratic, journalistic and political elite of Pakistan. One can only pray that the heavens and its many stars align to endow upon the kingmakers of our beloved nation the enlightenment and courage to grant an Atif Mian or an Atif Mian-like figure an elevated position of power to steer the nation into a positive direction. Despite the negatives you have mentioned, you must be nonetheless be aware of the fact around 2018 (DHS data), 54.2% and 57.9% of Pakistani households owned a refrigerator and washing machine respectively, in sharp contrast to rates of 37.9% and 18.0% for India respectively in 2019 (NFHS data). Moreover, Google Trends show that Pakistanis are far more likely to search for "menu" and "price" compared to the Indians, which highlights somehow a populace interested in consumption or the desire to consume. Surely there is something present within the societal structures of the people who dwell by the Indus and it's cherished tributaries that render them, once given the gift of elevated GDP growth, to embark on a journey of thrift to elevate their social positions far more than India, which the DHS/NFHS exhibits in a fine manner. The land that has been suspected by the scholar Seishi Karashima of having gifted Lotus Sutra to the world surely deserves better.
I have a slightly different take on the "convergence" of Bangladesh economy.
There was no doubt that country was doing exceptionally well a an LDC perspective. Its growth rates were impressive in the past years. However, that high economic growth was not exactly conditional on quality education, rule of law and broader protection of fundamental rights. Rather it was the absence of all these "conditions" that has paved the way for that country's dramatic regime change in early this month.
The only thing that was constant in that country over the past one and a half decades was political "stability" of the government. The Prime Minister and "elected" ruling party government ruled that country with an iron fist without any social or political unrests which were suppressed. Without all the required converging conditions, Bangladesh managed to grow exceptionally well. There were also good signs in social development indictors including child mortality.
So, the recent economic performances of Bangladesh could be a case study to assess whether it is presence of all those converging conditions, or political stability (without those conditions) that have paved the way that country has managed to grow over the past decade of a half with an aim of graduating to a "developing country" in 2026.
Now that a new Administration has come after the fall of long reign of the former Prime Minister, it would be interesting to see how that country would perform in the years to come in the near future.