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The Implications of the Inclusive Growth and Development Aid Agenda of the People’s Republic of China for Poorer Countries in Asia: The Case of Bangladesh
Mustafa K. Mujeri Zulfiqar Ali Siban Shahana*
Paper for Asia-Wide Regional Workshop on
SOCIAL INCLUSIVENESS IN ASIA’S EMERGING MIDDLE INCOME COUNTRIES
13 September 2011 Jakarta
*Director General, Senior Research Fellow, and Research Associate respectively at the Bangladesh Institute of Development Studies, Dhaka, Bangladesh. 1
The Implications of the Inclusive Growth and Development Aid Agenda of the People’s Republic of China for Poorer Countries in Asia: The Case of Bangladesh
1. INTRODUCTION The People‘s Republic of China (PRC) is widely regarded as a global ‗success story‘ both in terms of high and sustained aggregate and per capita income growth as well as substantial reduction of income poverty. The PRC has achieved an impressive record in reducing absolute poverty over the last five decades through sustaining high economic growth and raising the standards of education, health, and nutrition for all (see World Bank 2009, 2001, Chen and Wang 2001). Perhaps the most significant indicator of the success in improving the wellbeing of the Chinese people is the rise in the expectation of life at birth, which more than doubled from 34 years in the early-1950s to 73 years in 2007. Poverty reduction in PRC was very much due to a strong area-based government policy that emphasized infrastructure and agricultural reforms (‗Go West Strategy‘) paired with clear government structures responsible for poverty reduction including high and clearly determined funds for poverty reduction. In the aftermath of the global recession 2008-2009, PRC also started rebalancing its growth paradigm toward satisfying more the internal markets, which has major employment implications. At the same time, PRC as an emerging middle income country is changing its social policy with greater emphasis on social protection for all and improving the living conditions of the urban poor and lower income groups. Furthermore, the role of the ‗Leading Group of Poverty‘ and other institutions engaged in poverty reduction and raising living standards is changing toward new directions and sustained outcomes. Bangladesh, on the other hand, had very different starting conditions. While globalization is important for Bangladesh, the readymade garments (RMGs) sector which has emerged as the most dynamic sector over the years is not likely to be a sufficient driver of change for reducing poverty in the coming decades. At the same time, rural development achievements, social policy, institutions for poverty reduction, and the living standards in the cities are different in Bangladesh than in PRC. However, PRC may offer many lessons that Bangladesh can adapt to address rural and urban poverty. This paper therefore will go beyond a discussion on the benefits of globalization to draw lessons from PRC‘s success in order to identify how globalization can be tailored to bring benefits for the poor and accelerate poverty reduction in Bangladesh. As a new middle income country, PRC is rapidly emerging as a donor for development cooperation and aid. The paper will also discuss PRC‘s economic cooperation and development assistance to Bangladesh and discuss how this can contribute more effectively to poverty reduction in the country. The paper is organized as follows. This introductory section provides the focus, objectives and scope along with the data used and methods adopted in the study. Given the scope of the study, the analysis has been based mostly on the review of the existing literature along with 2
data from published sources. Section 2 contains a discussion on the socio-economic similarities and differences between Bangladesh and PRC along with major implications for growth performance. The focus is placed on how poverty reduction implications differed between Bangladesh and PRC especially in terms of rural development policy, globalization, social policy, and the characteristics of urban poor and migrants. Section 3 analyzes the underlying factors contributing to the differential performance in poverty reduction of Bangladesh and PRC. For the purpose, the section highlights the trends in income poverty in the two countries along with changes in social and environmental dimensions of poverty. The discussion also covers the role of differences in institutional setup for poverty reduction in the two countries and lessons for Bangladesh from PRC‘s experience. Section 4 deals with the poverty impact of PRC‘s economic cooperation and development assistance to Bangladesh. While the scope of this paper does not permit any rigorous analysis of poverty impact of PRC‘s economic cooperation with Bangladesh, a case study approach has been used to draw the conclusions. Finally, Section 5 summarizes the differing stories of poverty reduction in Bangladesh and PRC in order to specify important lessons. The section also uses the experience of PRC to identify the inadequacies of the recent growth and poverty reduction process of Bangladesh and suggest policies in the light of the lessons learned from PRC‘s experience. In this context, the focus has been placed on several specific issues, such as lessons from PRC to address rural poverty; limitations of the PRC example to address urban poverty in Bangladesh; the feasibility of replicating PRC‘s experience of committed institutional framework for poverty reduction in Bangladesh; and possible implications for a more pro-poor sub-regional cooperation with China. 2. SOCIO-ECONOMIC SIMILARITIES AND DIFFERENCES BANGLADESH AND PRC: IMPLICATIONS FOR PERFORMANCE BETWEEN GROWTH
This section briefly outlines important economic and structural similarities and differences between Bangladesh and PRC. It also discusses the implications of macro-economic dimensions (including global market integration and policies for rural development) as well as social policies for poverty reduction. The objective is to understand in what ways the two economies share common attributes, if any, and how they are fundamentally dissimilar in important ways. This will include population, geographical area, regional diversity, economic performance, institutional conditions and economic structure, initial conditions especially with respect to land relations and access to other assets, macroeconomic framework and policy leverages, economic diversification and structural change, trade policy and trade patterns, and financial and other sectoral issues. The focus, however, is on specific aspects having direct relevance to poverty reduction. The discussion also includes the machinery for poverty reduction which is so different in PRC from that of Bangladesh. The aim is to highlight the critical differences (in terms of initial conditions, institutional and policy frameworks, and other structural factors) that might have contributed to fundamentally divergent economic performance of the two economies and their future prospects.
2.1 Important Socio-Economic Characteristics of Bangladesh and PRC: Differences and Similarities The PRC is widely regarded as a success story of globalization which resulted from a combination of a prudent program of global economic integration and domestic deregulation as well as sound macroeconomic management. With high and sustained economic growth, poverty in PRC has been dramatically reduced and the country is heralding a major shift in global economic power. On the other hand, Bangladesh with a relatively small geographical area and large population has gradually improved its growth and poverty reduction performance especially since the 1990s. Some selected economic, social, and related indicators highlighting the differing characteristics of the two countries are given in Table 1. Despite the obvious differences between the two countries, both Bangladesh and PRC face rather similar economic problems in certain respects, such as sustainability of growth and emerging inequalities. In both countries, economic growth has been associated with sharp increases in spatial and vertical inequalities, greater fragility in incomes among the poor and marginalized groups, and adverse shifts in several climate change indicators. It is, however, important to recognize that the two economies are fundamentally different in many respects. In addition to large differences in physical area, population, regional diversity, and other characteristics, the institutional conditions in the two countries remain very different. Bangladesh started with a traditional mixed economy since Independence onwards, and the role of the private sector further expanded with neo-liberal reforms undertaken during the phase of globalization and reduced state regulations since the 1990s. The macroeconomic policies in Bangladesh focused more on economic stability while the inability of the state to implement any significant land (and rural) reforms and/or other strategies to bring about substantial redistribution of assets resulted in conditions in which wealth and income inequalities remained not only high and rising but also significantly constrained the capacity of the state to undertake any major redistributive policies.
Table 1: Selected Characteristics of Bangladesh and PRC Economy
Indicators Demographic Annual population growth, % Population density per sq.km. Working age population, % Urban population, % Economic Annual GDP growth rate, % GDP per capita, constant 2000 $ Agricultural land, % of land area Agriculture value added, % GDP Industry value added, % of GDP Exports, % of GDP Gross investment, % of GDP Social Life expectancy at birth, years Health expenditure per capita, $ Improved sanitation, % pop. 1980 2.68 694 93 15 0.8 226 75 32 21 6 14 48 … … Bangladesh 1990 2000 2.19 888 85 20 5.9 255 77 30 22 6 17 54 … 39 1.82 1,081 67 24 5.9 335 70 26 25 14 23 61 9 46 2010 1.35 1,263 … … 5.8 504 … … … … … … … … 1980 1.25 105 67 20 7.8 186 47 30 48 11 35 66 … … 1990 1.47 122 51 27 3.8 392 57 27 41 16 36 68 … 41 PRC 2000 0.79 135 48 36 8.4 949 57 15 46 23 35 71 44 49 2010 0.51 144 … … 10.3 2,423 … … … … … … … …
Improved water source, % pop. … 78 Female labor force, % total 37 40 Lifetime risk of maternal death, % … 4.18 Source: World Bank, World Development Indicators
79 38 1.71
,,, … …
,,, 43 …
67 45 0.31
80 45 0.11
… … …
PRC, on the other hand, had a very different economic structure to begin with which was ingrained in the command economy. It needs to be recognized that, after the 1949 Revolution, comprehensive and sweeping land reforms were implemented in PRC resulting in dramatic change in the asset distribution which significantly influenced subsequent policies. Although land relations have undergone many changes since then (e.g. from collectivization to more dependence on small holder peasants), the initial greater equality to land also influenced access to other assets and avenues for social mobility. In a more economically equal society, economic policies had a very different qualitative impact than similar policies in a more unequal society as in Bangladesh. It may be argued that, even after the sweeping reforms since 1979, state control over the macro-economy still remains substantial in PRC. Similarly, the ability of the Chinese state to influence economic activities through fiscal measures is enhanced by the importance of state owned enterprises (SOEs) and the township and village enterprises (TVEs) in total output. In the case of monetary policy, adjustment through administrative measures plays an important role in view of the dominance of state owned banks in the credit market. Despite the transition to the market based system, the Chinese government still has significant ability to quickly introduce corrective actions through its direct control measures.1 Another major difference between the two economies is the significantly high economic growth in PRC compared with moderate expansion in Bangladesh. The Chinese economy has grown at an average rate of around 10 percent for the last two and a half decades, while the Bangladesh economy has grown at less than half the rate over the same period. It is only in the 2000s that the Bangladesh economy grew at rates in excess of 5 percent per year. The higher growth in PRC stems from a much higher rate of investment—investment as a share of GDP varied between 35 percent and 45 percent over the last quarter of a century in PRC compared with 15 percent and 24 percent in Bangladesh. Although the aggregate incremental capital-output ratios (ICORs) have been similar in both the economies, the critical role of infrastructure investment is prominent in PRC, averaging around 19 percent of GDP since the 1990s compared with less than 2 percent in Bangladesh.2
The financial system in PRC still remains under significant control of the state, despite recent liberalization. For example, four major public sector banks handle the majority of the transactions of the economy and the resulting control over the financial flows is used to regulate the volume of credit and direct credit to priority sectors. Offbudget official finance and direct budgetary appropriations still constitute a large share of aggregate investment in PRC. 2 It is sometimes argued that it has been possible for PRC to achieve high investment rate due to large inflow of foreign direct investment (FDI), but FDI accounted for only 3-5 percent of GDP in PRC since 1990 reaching 8 percent only during the peak year. Over the 2000-2007 period, FDI accounted for only 6 percent of domestic investment in China. In recent years, capital inflows seem to have contributed more, in macroeconomic terms, to the accumulation of international reserves than to domestic investment in PRC.
Structural change in PRC has followed the classical pattern with transformation from the primary (agriculture) activities to secondary (manufacturing) activities. Over the last 25 years, the manufacturing sector has doubled its share of employment in total labor force and tripled its share of output in GDP. In contrast, the move in Bangladesh has been mainly from agriculture to the tertiary (services) sector. The share of agriculture in GDP has fallen from more than 60 percent to around 20 percent over the last two decades but its share in employment continues to be nearly 50 percent, indicating the persistence of low productivity employment for the majority of the labor force. Moreover, the expansion of the services employment has been mostly at the low value added end of the services sector indicating increase in the ‗distressed‘ low productivity employment. Trade policy and trade patterns also indicate significant differences between the two countries. The export growth of PRC has been aggressive with sharp increases in world market shares, driven by relocation of capital due both to cheap labor and subsidized infrastructure services. 3 In Bangladesh, on the other hand, cheap labor is mainly due to low absolute wages rather than public provisioning and underwriting of labor costs through conscious government policies. Thus export growth in Bangladesh has been much lower with little diversification; as a result, exports could not emerge as a strong engine of growth for the economy. The speed and nature of trade liberalization was also selectively pursued in PRC in order to minimize employment losses due to displacement of domestic industries. In terms of nature of growth, both the economies share a common pattern of rising inequalities. While spatial inequalities across regions have emerged as the major issue in PRC, vertical inequalities and rural-urban divide are becoming sharper in Bangladesh. The policy response in PRC has been to reduce inequality through changes in tax rates, greater public investment in western and interior regions, and improved social security benefits. On the other hand, inequality-reducing policies in Bangladesh are yet to receive high priority within the policy agenda. Despite the above and other major differences, both the countries face some common issues in terms of future prospects. No doubt, there are questions regarding sustainability of the current models of economic prosperity in PRC and Bangladesh. In PRC, the high accumulation-high export model is challenged by the recent global financial and economic crisis which has already created some adverse impact on the Chinese economy. Similarly, for Bangladesh, the issue of identifying a more sustained engine of growth for the entire economy still remains unresolved as readymade garments (RMGs) export is unlikely to support a broad-based growth apart from questions regarding its capacity to transform the country‘s labor force into higher productivity activities. Obviously, PRC and Bangladesh need better policies to manage the agrarian (rural) economies along with enhanced capacity to deal with the adverse impacts of the global economic crisis on their real economies. Moreover, despite different institutional conditions and other dissimilarities, the critical concern for both countries is that of creating sustainable and productive employment for the majority of the labor force.
The state provision of basic goods such as subsidized housing, food, and transport services for registered urban dwellers also reduced the labor cost of the employers.
2.2 Rural Development Policy in PRC and Bangladesh: Implications for Poverty Reduction The data from rural PRC during the post-reform period of farm and nonfarm rural development suggest that the level and composition of local economic activity made significant impacts on consumption and income growth at the farm household level (Ravallion 2002). The adopted strategies in PRC since the mid-1980s created virtuous cycles whereby external growth stimulus in a poor area generated positive and more widely diffused income gains in the rural areas. This shows that the nature of poor area development program is important for success. The emphasis in these programs must be put on agricultural development since agriculture is the key externality-generating sector in the rural economy of countries like PRC and Bangladesh. The detailed design of such programs is also important especially keeping in view the availability of local endowments of human and physical infrastructure. PRC and Bangladesh exhibit distinct patterns in overall economic and agricultural growth over the past few decades (Figures 1 and 2). Emerging from stagnation, PRC experienced three decades of high and sustained economic growth since the 1980s—averaging 10 percent per year from 1980 to 2008—compared with only 4.7 percent in Bangladesh during the same period. Even though growth in Bangladesh has not yet reached the high levels obtained by PRC, Bangladesh‘s growth shows a clear upward trend in recent years with an average of 5.8 percent during 2000-2010.
Figure 1: GDP and Agricultural Growth in Bangladesh, 1980-2010
It appears that agricultural growth in PRC has been higher and much less variable compared with agricultural growth in Bangladesh. Moreover, the relative importance of agriculture in the overall economy has been declining sharply, particularly in PRC. The share of agriculture in GDP decreased from 30 percent in 1980 to 11 percent in 2008 in PRC while similar decline in Bangladesh was from 31 percent in 1980 to 18 percent in 2009 (World Bank 2009). However, agriculture continues to account for 44 percent of the workforce in PRC and a much larger share in Bangladesh. Thus, agriculture continues to play a large role in both PRC and Bangladesh in providing livelihoods for the majority of their populations.
Figure 2: GDP and Agricultural Growth in PRC, 1980-2010
The importance of agriculture as an ‗engine of growth‘ for poverty reduction is highlighted in Bangladesh as the poor mostly live in rural areas and depends on agricultural activities. For rural development, emphasis is put on accelerating the growth of agriculture and non-farm sectors, improving the quality of social services, ensuring proper functioning of the rural institutions, and expanding the rural infrastructure. On the other hand, PRC‘s poverty reduction policies since 1978 can be classified under four phases: Phase I: Rural Reform, 1978-1985 Phase II: National Targeted Poverty Reduction Programs, 1986-1993 Phase III: The 8-7 Plan, 1994-2000 Phase IV: New Century Rural Poverty Alleviation Plan, 2001-2010. In order to address the most pressing problem of boosting rural economic growth after the post-1978 reform period, PRC launched institutional reforms of rural production and distribution systems and procurement prices. The fundamental institutional change, however, was the land reform characterized by the household responsibility system in rural China. These early rural reforms delivered remarkable results in terms of rural income growth and poverty reduction.4 The National Targeted Poverty Reduction Programs, launched in the mid-1980s, covered a wide variety of actors, initiatives, and funding channels. The State Council‘s Leading Group for Poverty Reduction (LGPR) was established in 1986 to ensure coordination among different poverty reduction initiatives and expedite development of the poor areas. For the officially designated ‗poor counties‘, the central government created special funds to support a subsidized loan program, food for work (FFW) program, and budgetary poor area development fund grants. At the local level, most poor provinces, prefectures, and counties established Leading Groups, and local governments were required to provide counterpart funds. The period under Phase II was, however, marked by relative stagnation of the rural economy,
A strong growth in grain yields and rural industries raised rural incomes by 15 percent a year in real terms. Rural income growth delivered nearly universal poverty reduction covering even the extremely poverty stricken regions (e.g. Huanghuaihai region in Eastern Fujian). Between 1981 and 1984, income poverty in terms of $ 1 a day fell from 49 percent to 24 percent, and the number of rural poor declined from 250 million in 1978 to 125 million in 1985 measured at the official poverty line.
slower growth in per capita value added from agriculture, relative decline in agricultural prices, and deterioration in rural-urban terms of trade in late 1980s and early 1990s. By 1994, the poverty rate was 18 percent in $ 1 a day terms and 80 million of the rural population remained poor measured at the official poverty line, lower by 45 million from the 1985 level. In 1994, the Government introduced the ‗8-7 Plan‘ (National Plan for Poverty Reduction) to intensify the poverty reduction policies. In implementing the 8-7 Plan, the Government refined its selection of poor counties and emphasized the responsibility of the local governments for ensuring effectiveness of poverty reduction initiatives within the framework of the ‗Poverty Reduction Responsibility System‘. The 8-7 Plan maintained the three channels of intervention launched in 1986: subsidized loan program, food-for-work program, and government budgetary grants. The subsidized loan program received the largest increase in funding which was mainly financed through the banking system so that its fiscal cost was not immediately visible. The 8-7 Plan had a positive impact on poverty reduction, especially in the designated poor counties. The number of rural poor, in terms of the official poverty line, declined from 80 million to 32 million between 1993 and 2000.5 The faster poverty reduction during the period came from four major initiatives: (i) high economic growth; (ii) agricultural price increase which was related to the 1994-1996 government procurement reform that boosted rural growth; (iii) rural-urban migration; and (iv) poverty reduction efforts. The 1990s also witnessed a steady progress in human development in the PRC. By 2001, the adult literacy rate rose to 85 percent, net enrollment rate to 99 percent in primary schools, and gross enrollment rates to 89 percent and 44 percent in junior and senior secondary schools respectively. During 1980-2001, the average years of schooling in the 15-64 year age group rose from 5 years to 8 years. Major progress was also achieved in the health indicators by 2001. Average life expectancy at birth reached 70 years, infant mortality declined to 3.1 percent, and under-five mortality fell to 3.9 percent. Nearly 85 percent of the population gained access to essential drugs and less than 10 percent were undernourished. Despite such improvements, rural-urban and coast-interior disparities widened in human development. It has now been recognized that the poverty reduction effects of the 8-7 Plan could have been further strengthened by greater clarity in government objectives, better targeting, and adopting more participatory approaches at the local level. A combination of different goals (e.g. subsidized loan programs both to reach the poor and promote growth) sometimes led to conflicting priorities to the local implementers. Better targeting could have been achieved by considering poor villages (or townships) and by adopting specific household targeting to reduce leakages and reach poor households residing outside designated poor localities. Similarly, the adoption of a more participatory program selection, project design, and management and evaluation approach could have reduced the mismatch with the priorities of the poor to achieve desired poverty reduction effects.
In terms of $ 1 a day income, total number of the poor dropped from 266 million in 1993 to 111 million in 2000 which in $1 a day consumption terms, reflects a decline from 344 million to 195 million over the same period. The gap between $ 1 a day income measure and $ 1 a day consumption measure suggests that rural households accumulate savings, presumably to meet anticipated and unanticipated other basic needs including health care and education.
Drawing on these important lessons learned from the 8-7 Plan, the Chinese Government launched a New Century Rural Poverty Alleviation Plan for 2001-2010 with focus on targeting poor villages rather than poor counties, emphasizing human capital and social development in poor localities, and promoting participatory poverty reduction approaches. PRC‘s Rural Poverty Reduction and Development Compendium (2001-2010) was issued in 2001. The Plan emphasized the development of science and technology, education, culture, health, and village based comprehensive development. The Plan also recognized that rural-urban migration was a critical avenue for poverty reduction in China and new policy initiatives were needed to make it easier for the rural inhabitants to benefit from new job opportunities arising in China‘s towns and cities. Measures and programs of the 8-7 Plan were regularly evaluated and adjusted to improve effectiveness. In September 1996, the Government convened the highest level poverty reduction conference to review the experience and lessons learned under the 8-7 Plan which strengthened the responsibility of local governments for poverty reduction performance, establishing the principle of ―four to provinces‖, which meant ―funds to provinces, power to provinces, tasks to provinces, responsibility to provinces‖ along with accountability for performance of local government officers. The new plan emphasizes the development of science and technology, education, culture, health, and calls for participatory poverty reduction approaches and village based comprehensive development including the recognition that ruralurban migration is a critical avenue for poverty reduction (Gao 2001). The above shows that PRC adopted diverse sets of reforms in last few decades with the goals of stimulating growth and reducing poverty. As a result, the number of poor people diminished greatly, due in large part to rapid and continuous economic growth. The poor population in rural areas fell from 250 million in 1978 to around 32 million in 2000. If the poverty line defined as $1 a day is used, the incidence of poverty declined from 31.3 percent in 1990 to 11.5 percent in 1998 (World Bank 2001). The overall fall in rural poverty in the two decades after 1979 was in fact largely accounted for by two relatively brief periods: the first five years of the reform period and the middle three years of the 1990s. During these periods, rural incomes advanced and macroeconomic policies and trends were pro-poor. Other years saw no significant fall in poverty despite rapid economic growth and a growing poverty reduction program. The first period, known as the era of reform and transition, focused on the reform of countryside. Over these years, the rural people‘s communes were dismantled, land was parceled out to households on an essentially egalitarian basis, farmers were encouraged to abandon the previous ―grain first‖ policy and to diversify production, and farm prices were raised. In addition, chemical fertilizer supplies increased rapidly. This combination of restored production incentives and rising supplies of farm inputs stimulated an unprecedented spurt of growth in both farm production and farmer incomes. The second period of sharp decline in rural poverty occurred in the middle years of the 1990s. Real per capita income of the rural Chinese people increased by 21 percent over the three years from 1993 to 1996. Thus, poverty reduction proved to be highly income elastic during the period: a 21 percent increase in rural income was accompanied by a 40 percent decrease in rural poverty. It is important to note that there is one significant factor common to both periods of rapid poverty decline: a sharp increase in agricultural prices and in agriculture‘s terms of trade with industry. The fact that falling rural poverty in PRC is associated with periods of rising relative 10
farm prices points to the importance of general economic policies in affecting the trends in poverty. Moreover, emphasis on agriculture and farm production, firm commitment to improving living and production conditions in poor areas, prioritizing education and training of poor people, and harnessing of science and technology to help reduce poverty are important elements that contributed to success of rural development in PRC. This was supported by policies for facilitating out-migration and voluntary resettlement from ecologically disadvantaged areas. Large infusions of infrastructure investment into many economically backward parts of the country also played key roles in developing the rural and backward areas (e.g. the Great Western Development Strategy adopted by the State Council in early 2000). In summary, the rural development and poverty reduction strategy in PRC focused on several aspects with relative priorities varying over time and locations: First, the strategy targets regional poverty e. g. poor counties. Second, the fundamental approach is to reduce poverty not by providing relief but by promoting economic growth in poor counties. Third, the main measures used are to provide financial, technical and social support to improve economic conditions. The expectation is that benefits from regional development will ―trickle down‖ to poor households. Within the framework, several policies and measures were highlighted in line with the regional strategy: Subsidized Loan Program The program features the assumptions that the poor lack funds and access to normal financial sources requiring collateral for lending. Food for Work Program Poor physical infrastructure is a major barrier to poverty reduction in poor areas. The Food for Work Program mobilizes under-employed labor in poor areas to improve infrastructure thus combining infrastructure development with employment creation for the poor. Development Fund Program The program addresses the budgetary shortage issue in poor areas. Under the program, two kinds of budget subsidy are provided. The first is called ―fixed subsidy‖ and is used to cover local government administrative expenditure in poor areas. The second is called ―development funds‖, earmarked to support development activities in the poor areas. Financing priorities include crop planting, livestock, and use of science and technology to combat poverty. The program also finances infrastructure such as roads, water supply and irrigation, as well as education and medical care services.
Poverty Reduction Program through Science and Technology The major objectives of the program are to promote technical extension, train cadres and farmers and organize experts with professional knowledge and skills to serve in poor areas. Major gains can be achieved through increasing agricultural productivity and promoting new income generation activities. Poverty Reduction through Involving Social Forces In order to raise and mobilize more resources from non-government channels, the government provides encouragement to various social forces to participate in poverty reduction. Relevant activities include poverty reduction carried out by non-functional institutions of the government and by social groups and non-government organizations (NGOs). The former uses resources of government departments that otherwise cannot be used for poverty alleviation. The latter is run by social groups and NGOs, which obtain their poverty reduction resources from donations. The participation of NGOs brings institutional innovations to poverty reduction including methods such as microfinance and the use of participatory approaches to poverty reduction. From the institutional perspective, two issues of the rural development policy of PRC deserve careful consideration. First, the possibility of deviation from the objectives of the centre by the local governments as a result of structural reforms providing more power and resources to the local entities. Second, possible contradiction between the pursuit of the dictates of the market economy and the objective of channeling resources to the poor. 2.3 Globalization and Poverty Reduction in PRC and Bangladesh In the broadest sense, globalization implies integration of economies and societies across the globe through flows of technology, trade and capital. Integration of production, accelerated cross-border investments and more trade are the logical outcomes of this process. It is a process that enables people, goods, information, norms, practices, and institutions to transcend national jurisdictions through markets, technologies, interests, and information flows. There are significant potential benefits of globalization. Openness to FDI can contribute to growth by stimulating domestic investment, improving efficiency and productivity, or improving technology. Increased access to the domestic financial system by foreign banks may raise efficiency of banking system thereby lowering cost of investment and raising growth. Trade openness may facilitate acquisition of new inputs, less expensive or higher quality intermediate goods and improved technologies that enhance the overall productivity of the economy. On the other hand, globalization entails significant risks and large economic and social challenges particularly to low income countries. Openness to global capital markets may bring greater volatility in domestic financial markets. Similarly, trade liberalization may reduce the demand for unskilled labor, lower real wages, job losses and income declines resulting in higher poverty. In the present context, globalization is viewed purely in its economic dimension,
increasing integration of the domestic economy with the world economy through exchange of goods and services, capital flows, technology, information and labor migration. After the reforms, PRC rapidly opened its economy and the country emerged as the sixth largest trader in the world by 2002 and its trade equaled 70 percent of its GDP by 2004. The country received $60.6 billion of FDI in the same year. Chinese export growth has been much more rapid, involving aggressive increases in world market shares. The export growth of PRC has largely been based on relocative capital which has been attracted not only by cheap labor, but also by excellent and heavily subsidized infrastructure, resulting from high infrastructure investment. In addition, the state provision of basic goods in terms of subsidized housing and food, and cheap transport facilities for registered urban dwellers played an important role in reducing labor costs for employers. The rapid export growth generated employment which constituted a net addition to domestic employment since until its WTO accession. It may be noted that PRC had undertaken much less trade liberalization than most other developing countries. This is one of the reasons for rapid growth of manufacturing employment until the mid-1990s as it was not counterbalanced by major losses of employment due to the effects of displacement of domestic industry because of import competition. On the other hand, large trade surplus in PRC has exacerbated the inequalities through stimulating the urban manufacturing sector, which is already relatively well off. It limits the government‘s scope to increase funding for public services such as rural health and education. The recent government effort is to rebalance China‘s production away from investment and exports and toward domestic consumption and services to improve the country‘s long-term macroeconomic health and the conditions of the poor. The globalization in PRC has not been confined to opening the economy alone but, more importantly, to globalization of institutions. Today, China is the country that sends missions throughout the world seeking best practices. It adapts not just foreign technology and foreign corporate management techniques but also a wide variety of foreign institutions and practices: international accounting standards; securities laws; military acquisition systems; model central bank structure; regulations for foreign portfolio investment; economic development strategy; and many others. Among important changes resulting from globalization are the decisions to adopt the universal concepts of rule of law; adoption of competition as a centrally important economic practice; and adoption of English language as virtually a second language for the educated population. On the other hand, after a hesitant start in the mid-1980s, Bangladesh strode forward to embrace the wave of globalization in the 1990s. Aided by trade liberalization and export incentives of various kinds, the economy has become much more open in the last decade. During the 1980s, the share of imports and exports in GDP remained virtually stagnant at less than 20 percent which exceeded 40 percent in recent years in Bangladesh. The flow of labor migration and the inflow of migrants‘ remittances have also gathered pace. The foreign exchange earnings from remittances now amount to nearly three-fourths of net export earnings. The least advance is for FDI (0.4 percent of GDP). The Bangladesh economy is more open now with rising share of exports and imports in GDP. Labor migration and remittances have been rising fast as well. So trade openness and remittances have acted as the two most important channels of globalization in Bangladesh. 13
As we have noted earlier, compared with the 1980s, the period after the 1990s witnessed accelerated growth and faster poverty reduction in Bangladesh, but also a widening of income inequality in both urban and rural areas. Analysis of the proximate sources growth during the 1990s shows that industry and services sectors contributed almost equally to the incremental growth, each with a share of about 41 percent, with agriculture making a relatively small contribution of 17 percent (Osmani 2005). At least two-thirds to three-quarters of the incremental growth in the 1990s originated from the non-tradable sectors, mainly services, construction, and small-scale industry. It is, therefore, reasonable to presume that growth acceleration of the 1990s originated from enhanced demand stimulus enjoyed by the nontradable sectors coming from three major sources: (i) quantum jumps in crop production; (ii) rapid growth of income generated by RMGs industry; and (iii) accelerated flow of remittances from abroad (Osmani 2005). Thus a plausible explanation of the dominance of the non-tradable sector is that this sector benefited from strong demand stimulus. The RMGs sector expanded rapidly since the 1990s with large increases in exports. The RMGs have a much higher share of wage bill in total value added (35 percent versus 13 percent for rest large and medium industries). Additional income generated by rapid growth of RMGs led to significant demand boost to services and other non-tradables as rural female workers spent a large share of their incomes on these items. Their spending pattern is skewed toward goods and services produced in informal non-tradable sector. Remittances also increased sharply over the period. Since a large share of remittances goes to the rural economy, this also boosts the demand for non-tradables produced by the rural non-farm sectors. Another source of stimulus is agriculture, especially rice production. Big jump in rice production (14-15 million tons in 1980s to 18 million tons in 1990 then another big jump 23 million tons in mid-1990s and now close to 34 million tons). This has been a major source of demand stimulus for the rural nonfarm sector. Bangladesh thus enjoyed three pronged stimulus to enhanced demand: (i) farmers enjoying higher incomes; (ii) garment workers (and their rural families); and (iii) remittance receivers. The growth-poverty nexus of the period worked through faster growth enabling the non-farm enterprises to expand their scale of operation. This structural change brought about a change in the nature of labor absorption in the sector along with greater expansion of wage employment. Since wage employment in larger enterprises in more rewarding than petty self-employment (of the 1980s), such growth also became conducive to poverty reduction. Globalization helped the above process in two ways: (i) by boosting the demand for non-tradables; and (ii) in the supply side, by reducing cost of production. The link between globalization and two proximate sources of demand stimulus (e.g. RMGs and remittances) is obvious. These processes were also helped by policy decisions e.g. trade and exchange rate policies and other global support that Bangladesh received as a least developed country. In case of quantum jump in rice production, globalization seems to have worked through trade liberalization which affected the relative price structure in the product market. Though rice is a tradable commodity, in practice it can be taken as a non-tradable commodity in Bangladesh as its price in the domestic market tend to remain between import parity price and export parity price under normal conditions. Probably, incentives provided by trade liberalization through 14
the input market have been more important in Bangladesh. One should note the liberalization of markets of agricultural inputs, especially elimination of non-tariff barriers on import of irrigation equipment, in the late 1980s; privatization of fertilizer distribution and internal market liberalization of fertilizer trade; and other measures. Similarly, on the supply side, small industries seem to have benefited from liberalization of import of capital machinery and raw materials. As a result, small scale manufacturing has fared better than large scale manufacturing in the post-liberalization period. Thus globalization has played an important role –both from demand and supply sides—to stimulate small scale nonfarm non-tradable sector that has been instrumental in accelerating growth and poverty reduction in Bangladesh. How has globalization impacted on employment generation? Employment in some industries expanded e.g. RMGs and leather manufacturing while in others like public sector jute and textile industries declined. But one may argue that since the whole idea of trade liberalization is to reallocate resources from inefficient importsubstituting industries toward more efficient export-oriented ones, some employment loss is inevitable. In net terms, evidence suggests that employment in tradable sector has also risen after trade liberalization. The present analysis suggests that, while globalization has enabled PRC to reap major benefits both in terms of growth and poverty reduction, it has also strengthened potential for higher growth and poverty reduction in Bangladesh. Whether this potential would be fully realized in Bangladesh depends on public policy that goes beyond globalization. Globalization brings about wide ranging structural changes in the economy, opening up new opportunities for increasing income and employment, but also closing down many existing means of livelihood. Economic theory suggests that gains should usually outweigh the losses, and overall welfare should rise. One major concern of public policy should be to address (e.g. social safety nets) the short run adjustment costs which usually fall disproportionately on the poor and weaker segments in society. The longer term concern would be to reduce the mismatch between the structure of opportunities opened up by globalization and the structure of capabilities possessed by the poor. Public policy will have to improve and re-mould the structure of capabilities of the poor e.g. by providing them with education, health care, access to infrastructure, and other assets. Otherwise, poverty reducing potential of globalization will remain largely unrealized. Thus the ability of globalization to reduce poverty in a sustained manner will depend in the end more on the internal political economy of resource mobilization and public expenditure than on the forces of globalization per se. 2.4 Social Policy in PRC and Bangladesh: Poverty Implications This section examines the role of social policy in determining the trends in poverty and inequality in PRC and Bangladesh and identifies critical elements that can promote a broader based social development approach for Bangladesh. In PRC, rapid and sustained economic growth over the decades helped many people to improve their socioeconomic conditions and move out of poverty. At the same time, there were people 15
who were excluded from the process especially belonging to urban marginalized groups, urban migrant workers, and farmers living in remote rural areas. The economic and social conditions of the poor contrasted sharply with the conditions of the booming middle class. As the reform moved on, there was growing awareness of slow social development emerging as a ‗bottleneck‘ for further marketization and economic growth. In the 1990s, various social policies including housing, healthcare, pensions, and social safety nets were added to the ‗system‘ in order to facilitate the functioning of a stable society—the backbone of economic development. Toward the end of the 1990s, the mounting political and social instability revealed many social problems hitherto hidden behind the growing economic prosperity in PRC. The income of some social groups declined in absolute terms and the gap between the rich and the poor widened. Confronted with the new social challenges, the market appeared to be unable to offer satisfactory solutions. PRC was faced with an unavoidable policy dilemma: without sufficient financial resources, the State will not be able to handle social problems and without dealing with the social problems, economic growth cannot be sustained. Since the revolution in 1949, PRC experienced many changes in social policy and outcomes. These were associated with much pain and much progress as well. The evolution of Chinese social policy can be broadly classified into three different periods: Central Planning Period (1949-1978); Pro-Urban Reform Period (1979-1999); and Pro-Poor Social Development Period (2000- ) The social policies of each period reflected the political and development strategy of the period. Social policy in each period also corresponded to the economic strategies to remove the barriers to achieve economic goals. Such combination of economic and social policies had very different effects on poverty and inequality. Central Planning Period (1949-1978) The central planning period reflected an attempt to boost fast growth of heavy industries in urban areas. The economic structure changed rapidly from an economy dominated by farming to one dominated by heavy industries. During the period, various social policies were taken to support industrial production. The basic idea was ‗production first and living secondary‘. The concept of social development had never been formally written into the national development plans until the Sixth Five Year Plan (1980-1985). However, the State had intervened in various social aspects. Starting from 1952, a rationing system was established. Social provisions were made to guarantee for urban residents basic food, housing, education, and healthcare at low prices. Social policy, being a tool to facilitate industrialization, was strictly limited to help urban development. The majority of the population living in rural areas did not enjoy any of the benefits which were available to urban residents. Within urban areas, inequality was partly disguised by the fact that the majority were poor. Nearly thirty years of central planning led to low productivity even in the fastest growing sectors, pervasive poverty both in urban and rural areas, as well as extremely low morale of the people.
Pro-Urban Reform Period (1979-1999) After 1978, markets were increasingly liberalized. From 1979 to 1999, the strategy to achieve rapid growth was industrialization and urbanization. The most important indicator of success was taken as growth in GDP. The policies were focused to industrial achievement with State provision of advanced education for the urban population, housing and transport systems for urban expansion, and social security for workers engaged in the process of industrialization and urbanization. Social policy of the period was designed to accompany the pro-urban growth model. Achievement in industrialization and growth in total output were the prime goal for the government and the State was to guarantee the provision of public services for the fast growing parts of the economy. The effect of this was to leave little or nothing for the rural majority. This accelerated migration to the cities, and resulted in growing inequality. In the 1980s, economic growth reduced the number of people living in poverty. But the differences between the rural and urban areas became greater than ever. Pro-Poor Social Development Period (2000- ) From 2000, the problems with the pro-urban growth model became obvious, in particular the tension between the slow progress in rural areas and fast growing urban areas. At the same time, a difference between ‗coastal‘ and ‗inland‘ areas developed in terms of economic growth and income levels, with the ‗west‘ suffering from much slower growth. It was much easier for farmers living in coastal areas to find non-farming jobs in cities than for farmers living in inland areas. Therefore, inter-regional income inequality in rural areas between the coastal regions and inland regions also increased. In mid-1999, the Central Government approved the ‗Developing the Western Region‘ strategy. For 15 years, economic development in the western region had lagged behind other parts of PRC. The purpose of the strategy was to narrow the gap in incomes and regional development, maintain social and political stability in the west through boosting economic development, and create new engines for economic growth. There were five aspects of the government plan: infrastructure construction; ecological development and environmental protection; improvement of the structure of industries; development of technology and education and acceleration of skills trainings; and promotion of reforms and openness. Under government guidance, large quantities of funds and investment were shifted into western China to engage in large scale projects as well as financing development policies. At the same time, to ease the pressure generated by excess rural labor, the State decided to further encourage the development of small cities and towns. The experience of PRC indicates that social development needs to be the core element of a successful and sustained poverty reduction strategy. It also highlights the need to adopt a broad based social development approach to reduce poverty and inequality. In the case of Bangladesh, the strategies for meeting the challenge of accelerated economic growth and reducing poverty have included a shift away from state bureaucratic controls and 17
industrial autarky toward economic liberalization and integration with the global economy on the one hand, and building human capital and empowering the poor on the other. Bangladesh embarked on structural adjustment toward the mid-1980s and, in the following decade, its economic performance improved notably. These reforms were initiated against the backdrop of serious macroeconomic imbalances, which had been caused in part by a decline in foreign aid and in part by a preceding episode of severe deterioration in the country's terms of trade. The beginning of the 1990s saw the launching of a more comprehensive reform program, which coincided with a transition to parliamentary democracy from a semi-autocratic rule. During the 1990s, Bangladesh notably improved both its economic performance and human development indicators. Bangladesh's achievements in health and population, has brought significant social change. On the education front, Bangladesh has achieved remarkable success in expanding primary education, especially for girls, despite continuing prevalence of widespread poverty and social repression of women and girls. The social development scene in Bangladesh is characterized by a strong presence of non-governmental organizations (NGOs). Bangladesh's achievements are particularly remarkable in reducing infant and child mortality rates, eliminating gender disparity in primary and secondary school enrolment, and in reducing population growth. Both policies and institutional innovations have delivered impressive progress in social development indicators. Bangladesh‘s experience shows that it is possible to achieve rapid progress in many social development indicators even amid widespread poverty. 2.5 Differing Problems of the Urban Poor and Migrants in PRC and Bangladesh Both PRC and Bangladesh have experienced very high rates of urbanization. It is estimated that the annual rate of urbanization in PRC increased from 19 percent in 1980 to 44 percent in 2006. Bangladesh also demonstrates high growth of urban population (Figure 3). The problems faced by the urban poor and migrants in PRC and Bangladesh differ significantly due to various economic and social factors. In Bangladesh, poverty rates have been lower and it declined faster in the urban areas.6 The poverty rate declined by 23.8 percentage points in the urban areas compared with 25.7 percentage points decline in the rural areas over the last 18 years (1992 to 2010). The most recent survey, however, shows some increase in both urban poverty and inequality (BBS 2011). Two proximate determinants may be identified for these developments. First, increasing migration of the rural poor to the urban areas in search of jobs and better livelihood opportunities; and second, relatively less equalizing nature of urban growth relative to rural growth leading to worsening inequality and reducing the poverty reducing impact of economic growth. Despite somewhat different initial conditions, PRC adopted appropriate policies and programs to use internal migration as an effective tool to fight poverty especially in the rural areas. PRC adopted a national policy toward internal migration and, over the years, one can observe a shift in policy in favor of encouraging internal migration to boost poverty reduction (Ping 2003).
The head count index in the urban areas declined from percent in 1991-92 to percent in 2010 while the decline was from percent to percent over the same period in the rural areas. See BBS 2011.
Some studies point to relatively small difference in poverty rates of migrants and local residents in the urban areas of PRC. In 2000, the headcount ratio was 15.2 percent for migrants compared with 10.3 percent for local residents for the same cities (ADB 2004, Hussain 2003). In 2002, the rate was 3 percent for local residents and 10 percent for migrants using locally set poverty lines, and 6 percent for local residents and 16 percent for migrants using a somewhat higher poverty line (Du, Gregory and Meng 2006).
Figure: 3 Growths in Urban Population in Bangladesh and PRC
Source: World Bank
Internal Migration in Bangladesh and PRC Both Bangladesh and PRC have a large rural population and agricultural labor force. In both countries, rural to urban migration has played an important role in the rapid increase in urban population. The rate of migration is influenced, among others, by the rural-urban wage differential and labor market situations: an increase in the demand for labor in urban areas can push up urban wages and increase migration (Harris et al. 1970, Massey et al. 1993). Labor markets in urban China witnessed important changes, rural to urban migration increased dramatically, especially to large, coastal cities. Since the early 1980s, the Chinese Government shifted its policy from controlling to actively encouraging migration.7 While facilitating outmigration, the Chinese Government also continued to search for ways of improving the livelihoods in rural areas, for instance through local off-farm employment. In 2003, rural enterprises in PRC contributed 31.4 percent of the country‘s GDP and employed 136 million people or 27.8 percent of all rural laborers. The remaining rural laborers, over 350 million, continued to rely on farming (Zhang 2003). The current policy in PRC is to transfer some of these rural laborers to off-farm work and to involve others in specialized agriculture and agribusiness since these activities generate higher incomes than grain production. The policy approach aims at improving the livelihoods of the rural population through channeling benefits generated by out-migration especially utilizing return flows of information, skills, and finance toward developing off-farm industries and specialized agriculture.
This is because of the importance of the flow of migrant workers especially into urban construction projects and the recognition that shifting individuals from subsistence/petty commodity farming to off-farm work is the quickest way to raising their incomes. For example, between 1997 and 2000 the average annual income from agricultural production decreased from 1,092 Yuan to 600 Yuan per capita. Meanwhile the average annual income of rural migrants working in the cities increased from 512 Yuan to 700 Yuan per capita (Zhang, 2002). In 2003, some 113.9 million rural people migrated to the cities, accounting for 23.2 percent of total rural laborers (China Daily, 16 May 2004).
On the other hand, shifts in the labor market in Bangladesh, among others, illustrate the importance of the services sector and the readymade garments (RMGs) industry in generating new jobs especially in the urban areas. However, one of the major reasons for out-migration is the lack of year-round employment opportunities in the rural areas (Afsar and Baker 1999). The growth of the RMGs industry expanded the opportunity of rural migrant workers, especially females, to enter into the labor market prior to which urban migration of poor rural women was mainly to work as construction labor or domestic workers.8 The underlying reason behind migration in Bangladesh has always been better income and reduction of poverty; and the expected outcome is largely dependent on the nature of migration; the kind of physical, human and social capital of migrants; over and above the economic prospects both at the place of origin and the place of destination (Finan 2004, Blackburn 2010). Similarly, seasonal migration is a significant livelihood strategy for the poor households especially those who are affected by natural disasters. Another recent feature of internal migration in Bangladesh is the feminization of migration (the so-called ‗autonomous female migration‘) which has increased because of a greater demand for female labor in certain urban services and industries (e.g. RMGs) as well as growing social acceptance of women‘s economic independence and mobility. The majority of female ruralurban migrants in Bangladesh are young and unmarried. On the other hand, the pattern in PRC is still largely male-dominated (Zhao 2001, 2003).i However, the migration by women to urban RMGs industry is notable in both Bangladesh and PRC. Problems of the Urban Poor and Migrants Whether migration is poverty reducing or not, migrants usually travel and live under very difficult conditions in both Bangladesh and PRC. In many urban areas of Bangladesh, the poorest settlements are mostly occupied by poorest residents and new migrants. The large majority of the migrant populations are poor, frequently living in slums and relying on the informal sector for employment. The most notable feature of this urbanization is the mushrooming escalation of slums and squatters with very few basic services such as roads, housing, potable water, electricity and sanitation facilities (Afsar 2000). Even those who earn reasonable amounts face constant threats of eviction, disease, sexual abuse, underpayment and police harassment. Migrants work long hours in harsh conditions, where injuries are common without adequate medical assistance or compensation. Even if migrant jobs are in the risky informal sector, the gains to be made can be several times higher than wages in agriculture and other rural activities. Rural-urban migration is also seen as a major contributor to chronic poverty and food insecurity in the urban areas. The urban poor and migrants are particularly vulnerable to a host of public health issues at their workplace and residence, and due to the environment they live in. These include their living
The RMGs industry currently employs around 2 million people (nearly 90 percent of whom are women) in more than 3,500 small and medium-sized factories spread around Export Processing Zones and urban areas of Dhaka, Narayangonj, Chittagong and Khulna.
conditions, access to healthcare and social services, inclusion into public health programs, and the particular conditions of irregular and labor migration. Work-related health concerns are largely due to the work migrants are able to find and the conditions of labor. Many construction sites, mines, factories, and enterprises where migrants work are not closely regulated and these rarely invest in safety and maintenance. On the other hand, urban poverty in PRC is an issue of recent concern.9 The current policy focus is on balancing GDP growth and employment, including part-time or temporary work. It is now recognized that massive migration flows have given rise to various difficulties, despite the efforts to manage them. The Chinese Government has adopted a more positive attitude toward rural to urban migration flows, in particular following the shift of emphasis from agriculture to industrial development and from a planned to a market economy. The ‗New Paradigm for Development Strategy‘ fosters a balanced geographical, social and economic development. Some sending areas perceive labor migration as a development strategy to reduce rural poverty, and most internal migration flows are directed from villages to towns and cities and into off-farm activities, and from the interior to coastal areas. Among these is the so-called ‗floating population‘, people who are neither registered in their homes nor their host regions. A new phenomenon in PRC is the return of migrants to their villages who are disappointed with the labor market and poor working conditions. These returns to home areas cause labor shortages in urban areas (as happened in 2004). Other returns can be beneficial for home areas, such as remittances sent by migrants; the experience gained and improved family status, particularly for female laborers. In addition, some positive outcomes of internal migration for receiving areas are also acknowledged such as the relaxing of institutional boundaries between rural and urban areas as well as coastal and central regions. The experience in both Bangladesh and PRC shows that internal migration can be a crucial livelihood strategy for many poor people, and an important contributor to national economic growth. Internal migration has the potential to contribute to development in a number of ways. By supplementing the earnings through off farm labor in urban areas, rural households diversify their sources of income and accumulate more collective capital. In the short term, migration may result in the loss of local financial and human capital, but it can also be beneficial and contribute to the long-term development of rural areas. In particular, internal migrants‘ remittances can be a significant factor in alleviating poverty of rural households. Remittances from urban employment supplement rural incomes, boost consumption in rural areas, contribute to household savings and thus can stimulate the local economy.10 On the other hand, some evidence shows that total grain output in several locations somewhat declined while disposable household income increased as a result of migration in PRC. It is also observed that migrants earn lower wages than local residents after controlling for observable characteristics,
The term ‗urban poor‘ was not officially used in PRC until very recently. An alternative term was ‗the medium to low income groups‘. This referred to the majority of ordinary employees and their families in the public and private sectors. This official figure for the medium to low income group included about 80 percent of the urban population. More recently, the term ‗low income group‘ is being used to refer to the urban households that require government help.
For a more extensive discussion of the costs and benefits of return migration for development in PRC, see Murphy 2010.
and they are much worse off than local residents in terms of a number of important nonincome welfare indicators (Yang 2004, Perk 2010). A better understanding of the PRC‘s policy approaches and the way internal migration is being managed to achieve specific development goals will no doubt provide useful lessons for Bangladesh. In this context, there are many different policy instruments that national governments can use to manage internal migratory flows. A distinction can be made between direct measures targeted at migrants or potential migrants, and more general measures to combat poverty that may have a special impact on migrants, such as rural development policies. 2.6 Conclusions Migration plays an important role in Chinese economic growth and urbanization. Most of the migrating population, both inter-provincial and intra-provincial, seeks employment in manufacturing and industrial hubs located in special economic zones and industrial bases in the eastern part of the country. Although the central and western regions together account for nearly 90 percent of the country‘s territory, scattered population and large swatches of land with a low urbanization rate have impeded the development in the central and western regions. These regions are characterized by small production scales and low incomes of residents; low stage in the evolution of the industrial structure; low productivity of labor and weak market competitiveness; and low level of opening up to the outside world which, in turn, leads to limited scope to attract FDI. There exist some similarities between such disparities in PRC and the ‗east-west divide‘ in Bangladesh which refers to the lagging economic performance of the western and southern regions of the country. In this context, the Western Development Strategy (XiBu Da Kaifa) adopted in 2000 by PRC for boosting economic growth, raising people‘s living standards, and enhancing environmental conservation can provide important lessons for developing the lagging regions in Bangladesh. The success of the Strategy in unleashing steady growth in China‘s West was supported by use of financial transfer payments and reallocation of tax paid from eastern China to support the relatively underdeveloped areas and extension of support from the developed to the underdeveloped regions. In countries like Bangladesh, the growth of urban centers is central to the task of developing the country. These centers are institutional engines that facilitate, as the experience of PRC shows, increase in productivity and external competitiveness. These are also important because of their potential of increasing consumption levels which in turn plays a crucial role in the development of the national economy. 3. POVERTY REDUCTION IN BANGLADESH AND PRC: UNDERSTANDING DIFFERENTIAL PERFORMANCE The progress of poverty reduction in PRC over the last quarter of a century has been highly significant. Income poverty has been reduced dramatically, and substantial progress has been made in terms of different human development indicators. Most of the Millennium Development Goals (MDGs) are either already achieved or the country is well on the way to achieving these goals. In particular, PRC‘s post-1978 reform period witnessed a large scale poverty reduction benefiting from both fast economic growth and the government‘s poverty reduction programs. In terms of the official poverty line, the number of the poor fell from 200 22
million in 1981 to 28 million in 2002 while a similar decline was from 490 million to 88 million over the same period in terms of the World Bank‘s $1 a day income measure.11 This section provides a review of the poverty reduction performance of the two countries— Bangladesh and PRC--primarily using standard income/consumption indicators. It also discusses the issues of inequality, rural-urban and regional gaps, as well as future poverty trends at different poverty lines (national, international $1.25, international $2). In addition to income poverty, the section also examines human and environmental poverty. Related indicators including MDG relevant indicators of both countries are analyzed to highlight the relative performance of the two countries. In this context, one major concern of the section is to identify the underlying factors contributing to the spectacular success of PRC in reducing poverty over the last decades. The success factors are compared with Bangladesh‘s changes in similar areas in order to draw conclusions. Poverty reduction strategies of both countries are also analyzed to identify differences in overall pattern of growth and structural change influencing poverty. The operation of the fiscal and other systems are examined to identify pro-poor policy initiatives. Specific poverty reduction policies and programs (including financing) and the institutional framework to deliver on poverty reduction in both countries have been discussed to explore the challenges faced by PRC‘s poverty reduction initiatives and measures adopted and their relevance to Bangladesh. 3.1 Trends in Income Poverty PRC has made remarkable progress in reducing poverty since 1978. If fact, it has drawn the world‘s attention through outstanding poverty reduction achievement during the period. The number of the absolute poor in rural areas dropped from 250 million in 1978 to 23.65 million in 2005, representing a decline in poverty incidence from 30.7 percent to 2.5 percent (Table 2). According to the World Bank estimates, during 1991 to 2000, the number of poor living below $1 a day declined by 274 million globally, of which 151 million were in PRC which represented 75 percent of the total population moving out of poverty in the developing world (Lei 2006).
Table 2: Rural Poverty in PRC based on Official Poverty Line Year 1978 1980 1985 1987 1990 1995
Poverty incidence (%) 30.7 27.6 14.8 12.0 9.4 7.1
Number of the poor (million) 250.0 218.0 96.0 85.0 65.0
Urban-Rural income ratio 2.48 2.10 2.48 2.79
Using World Bank‘s $ 1 a day consumption measure, the number of poor declined from 360 million in 1990 to 161 million in 2002, which corresponds to a decline in poverty incidence from 31.5 percent in 1990 to 12.5 percent in 2002. PRC‘s official poverty line is about two-thirds of the $ 1 a day income poverty line.
2000 2005 Source: Huang et. al. 2010
PRC‘s growth performance was also remarkable during the last three decades. Its average rate of growth of per capita GDP has been 8.1 percent during 1978-2002. PRC‘s per capita real GDP in 2005 was nearly eight times as that in 1980 (Table 4). Such rapid economic growth contributed to significant drop of rural poverty during the period. At the same time, as the number of poor declined significantly, the infrastructure and social utility levels and the basic working and living conditions of the poor improved sharply.
Table 3: Selected Macroeconomic Indicators in PRC Year Real per capita GDP (in 2001 yuan) 1,575 2,446 3,307 5,555 8,020 Annual GDP growth rate (%) 7.8 13.3 4.2 9.0 8.8 Share of agriculture in GDP (%) 29.9 28.2 26.9 19.8 14.8 12.6 Exports (in billion US$) 18.12 27.35 62.09 148.78 249.20 761.95 FDI (in billion US$) 1.96 3.49 37.52 40.72 60.33
1980 1985 1990 1995 2000
2005 12,248 Source: Huang et. al. 2010
Obviously, the extent to which aggregate income growth translates into poverty reduction depends upon the distribution of income. The relevant data clearly suggests a worsening of inequality in PRC over the last three decades (Table 4). The data also suggests significant increase in rural-urban income differential over the same period (Table 2). The incidence of poverty (including moderate and extreme/hardcore poverty) has declined in Bangladesh over the past several years (Table 5). As the estimates indicate, income poverty has declined from 56.6 percent in 1991-92 to 31.5 percent in 2010. Similarly, extreme poverty has also declined substantially during the same period. However, compared with the poverty reduction achievement of PRC, Bangladesh‘s performance is less spectacular.
Table 4: Gini Co-efficient of Consumption Distribution in PRC Region 1978 National Rural Urban Source: Huang et. al. 2010 0.30 0.21 0.16 1988 0.38 0.30 0.23 Year 1997 0.34 0.34 0.29 2002 0.45 0.38 0.34
Table 5: Incidence of Absolute and Hardcore Poverty in Bangladesh Year 2010 2005 2000 1995-95 1991-92 Source: BBS 2007, 2011 Based on CBN method Upper poverty line 31.5 40.0 48.9 50.1 56.6 Lower poverty line 17.6 25.1 34.3 35.1 41.0 Based on DCI method Absolute poverty (2,122 Kcal/person/day) 40.4 44.3 47.5 47.5 Hardcore poverty (1,805 Kcal/person/day) 19.5 20.0 25.1 28.0
The calorie based measures of absolute and hardcore poverty have also declined in Bangladesh. The perception based poverty assessment also confirms the decline in both moderate (as reflected in occasional deficit) and extreme (as reflected in always deficit) poverty during the same period (Table 6). However, the relative performance raises the issue of whether the extreme poverty concerns have adequately been taken into account in devising anti-poverty policies and programs in the country as the rate of reduction of extreme poverty has been rather slow and the total number of poor in the country is still quite large.
Table 6: Incidence of Self-Assessed Poverty in Bangladesh (Percent of rural households) Year 2010 2004 2001 1995 Always in deficit 4.4 11.6 9.9 18.0 Occasional deficit 24.1 31.9 26.3 32.2 50.0 Break-even 32.9 33.4 40.8 30.7 17.5 Surplus 38.6 23.1 23.0 19.1 8.5
1989 24.0 Source: GoB 2005, BIDS-IEC 2010.
3.2 Trends in Social and Environmental Poverty The progress in human and social development in PRC has also been remarkable since 1978. The level of people‘s education and health condition has significantly improved since reform, which has contributed to better human capital accumulation in PRC. Average years of schooling (above 15 years of age) increased to 7 years in 2000 from 4.6 years in 1982. The share of illiterate population also declined substantially from 22.8 percent in 1982 to 6.7 percent in 2002 reflecting a decrease from 231 million to 85 million. Infant mortality decreased from 37.6 percent in 1982 to 28.4 percent in 2000. The average life expectancy increased to 71.4 years in 2000 from 67.8 years in 1981. All relevant indicators demonstrate rapid progress in human and social development, and the complementary relationship between economic and social progress in PRC. 25
Table 7: Selected Social Development Indicators in PRC Indicators 1978/80 Adult illiteracy 7-15 children enrollment rate Infant mortality rate (per 1000) Maternal mortality rate (per 100,000) Crude death rate Life expectancy % of population that lack access to safe water % of population that lack access to primary health care Labor migration rate % of households with access to electricity % of villages with access to telephone % of villages with access to roads Source: NBSC 2004, ADB 2000 22.8 6.25 69.0 1990 20.7 82.9 32.9 88.9 6.67 68.6 24.5 10.0 1.4 86.0 43.0 74.0 Year 1997/2000 16.36 33.3 61.9 6.56 70.8 13.3 7.7 2002 10.7 94.5 18.5 93.7 92.2 96.8
The performance of selected social indicators in Bangladesh is presented in Table 8. Child nutritional status reveals that a high proportion of children in the country currently suffers from malnutrition. It is true for both underweight (41 percent) and stunted (43 percent) children. Moreover, rural children lag far behind their urban counterparts. Improvement has also taken place in the case of mortality indicators. Under-five mortality per thousand live births declined from 151 in 1990 to 73 in 2010. Infant mortality rate per thousand live births also declined from 94 to 41 during the same period. Access to safe drinking water is satisfactory at its current state (97.8 percent). However, arsenic contamination now poses a great threat indicating the need for a review of the definition of 'safe water‘ considering the arsenic contamination of ground (tube well) water. Access to sanitary toilet is still poor with only 54 percent of the total population enjoying such facilities.
Table 8: Selected Social Development Indicators in Bangladesh, 1990-2010 Indicators Rural % Underweight Urban National Rural % Stunted Urban National Year 1990 68 64 1995 56.3 54.6 2000 53.9 43.1 50.8 51.1 40.4 48.0 2003/05 48.8 42.2 47.5 44.3 37.6 43 2007/10 43.0 33.4 41.0 45.0 36.4 43.2
Human Poverty Index (HPI) Total fertility rate Under 5 mortality rate (per 1000) Infant mortality rate (per 1000) Maternal mortality rate (per 100,000) Access to safe drinking water (%) Access to sanitary toilet (%) Male Literacy rate (7+) Female Both Boys Net primary enrollment rate (%) Girls Both Contraceptive prevalence rate (%) Rate of immunization (DPT 3): 12-23 months Severe malnutrition (MUAC < 12.5 cm): 12-59 months Net secondary enrollment (%) Boys-girls ratio in primary Boys-girls ratio in secondary Boys Girls Both
4.3 151 94 478 89 21 38.9 25.5 32.4 60 59 60 40 62 11 31.47 1.23
47.4 3.5 125 71 447 97 38 82 82 82 49 69 11 43.24 1.103 1.096
40.3 3.0 92 57 400 97.5 43.4 49.5 40.1 44.9 81 83 82 52 74.4 3.6 5.7 4.7 45.39 1.036 0.866
36.4 2.56 88 53.3 391 97.4 53.2 52.8 44.5 48.8 81.1 84.4 82.8 53.4 81.0 3.6 4.8 4.2 47.75 1.1098 -
2.3 73 41 97.8 54.1 61.12 54.80 57.91 82.61 86.99 84.75 55.8 90.0 -
Source: BDHS 2007, HDR 2009, Progotir Pathey 2009, BANBEIS 2006, HDR 2009
Though the literacy rate has increased from 32.4 percent in 1990 to 57.9 percent in 2010, it is still fairly low compared with other developing countries. Although male literacy is still higher than that of females, the rate of progress of female literacy is much higher than that of male literacy implying signs of convergence between the two. Net primary enrollment has also improved significantly over the last decade. While the net primary enrollment was 60 percent in 1990, it has risen to about 85 percent in 2010. There is little difference between boys and girls in this respect. 3.3 Institutional Setup for Poverty Reduction: Bangladesh and PRC There were three distinct phases in the approach to poverty reduction in PRC: (i) improving farmers‘ access to assets (prior to 1978); (ii), overall economic growth and improvement in the terms of trade of agriculture (between 1978 and 1984); and (iii) targeted programs combined with a trickle-down development strategy (after 1985) (ADB 2000).
From its establishment in 1949, PRC aimed at building an ideal socialist country without exploitation and class disparity. To address low productivity and insufficient resources, the government established a centralized planning system to assure that available resources and products were relatively equally shared by all citizens and, at the same time, improve farmer‘s access to assets (ADB 2000). Poverty reduction in this phase was mainly realized by: Increasing farmer’s access to land: PRC undertook nation-wide land reform reallocating the land of landlords to poor farmers and tenants. Land reform gave all farmers tenure, and succeeded in creating a relatively equal distribution of land among different classes in rural areas. Improving farmer’s access to physical assets: Through the 1950s to the mid 1970s, the government used control of resources to organize nation-wide infrastructure development in rural areas, particularly bringing about improvements in irrigation and road access. It is estimated that the length of roads increased about nine fold, and the irrigated area increased by 125 percent during this period (ADB 2000). Improving farmer’s access to financial services by building a national network of rural credit cooperatives. Extending farmer’s access to technological extension services: During this period, PRC established 40,000 agricultural extension agency offices country-wide. Improving farmer’s access to basic education and primary health services: During this period, PRC increased the number of primary schools by 1.6 times, and the number of secondary schools by 28 times. To develop health services, PRC established more than 50,000 township hospitals and over 600,000 village clinics, covering 68.8 percent of all villages. Establishing a community-based social security system: PRC established a community-based rural security system in the country during this period providing basic social protection for rural residents especially those who were unemployed or unable to work. As a result, poverty incidence in rural areas declined from about 80 percent to 50 percent in this phase (ADB 2000). The improvements in this phase were, however, achieved at the expense of economic efficiency, and through highly centralized control over the economy by the state. Consequently, the strategy during the period was also limited in its potential for impact on poverty. In 1978, PRC introduced the household responsibility system in the rural areas. The farmers regained their right to use and manage land and their labor. This increased farmers‘ incentives to invest, improve management and increase productivity. Remarkable progress in poverty reduction in this phase was mainly achieved by: Continuous high economic growth: The average per capita growth rate of GDP in PRC was 8.1 percent during 1978-2002. This corresponds to doubling the per capita GDP every 8.6 years and 5.4 times of the global GDP per capita growth rate over the same period (Angang). Rural labor force transfers to non-agricultural enterprises: During this period, more people were employed in village and township enterprises. The number increased from 28 28
million in 1978 to 131 million in 2001, accounting for 26 percent of rural workforce compared with the initial share of 9 percent. Speeding up urbanization: A large number of rural population migrated to the urban areas during this period. About 206 million people moved from rural to urban areas during 1982-2000, which was about 45 percent of total urban population during the same period. The majority of the migrants were rural laborers who went to cities for work. Implementing export oriented open-up policies: China‘s exports increased rapidly since the policy of reform and opening up of the economy since 1978. Especially, the export of labor intensive products increased very rapidly, which played an important role in expanding employment and reducing poverty. In addition, China drew foreign investment actively and took an active part in economic globalization. Improvement of human capital: The level of people‘s education and health condition greatly improved since the reform, which played an important role in raising people‘s living standard and improving poverty reduction performance. With the implementation of market oriented economic reforms in PRC, economic growth after the mid-1980s resulted in increased income inequality. To address this, the government initiated targeted poverty reduction programs since the mid 1980s: Implementing regionally targeted programs, initially without support from macroeconomic policies. Adjusting macroeconomic policies to permit and promote the participation of poor areas and poor farmers in economic growth by relaxing controls on farmers‘ migration between regions and supporting labor intensive industrial development. Finally, the government initiated the Poverty Reduction Plan to lift the remaining rural poor out of poverty. After 1996, the government adjusted the targeting basis from poor regions to poor villages and poor households. At the same time, finance for poverty reduction programs was increased substantially. The poverty reduction program of PRC comprises a wide variety of actors, activities, and funding channels. The Leading Group for Poverty Reduction (LGPR) and its executing agency, the Poor Area Development Office (PADO) system which extend down to the county and township levels, has the responsibility for the overall success of PRC‘s poverty reduction program and for the coordination of the large number of poverty reduction activities of different government ministries and agencies. With the exception of some lesser programs under their immediate control, the LGPR system does not directly implement poverty reduction projects and activities. Available evidence shows that there is room for substantial improvements to program effectiveness through much stronger institutional arrangements especially by giving the LGPR system a greater planning and supervisory role for the use of the funds which would raise the impact of the funds on the poor and reduce the leakage of funding to alternative uses. Similarly, forging stronger links with government line bureaus academic and civic organizations involved in poverty work would increase LGPR‘s effectiveness in setting policy and implementing programs. The contracting of implementation of suitable projects to grassroots and civic organizations including the government organized NGOs (GONGOs) could help adopt new and innovative approaches and improve outreach. The strengthening of LGPR‘s oversight and control should be complemented by measures to increase LGPR‘s 29
accountability by improving monitoring of the impact of the poverty program and the use of poverty funds. Bangladesh, on the other hand, has a long history of implementation of anti-poverty programs. The Rural Public Works Program (RPWP) has been an important policy instrument for the government since the early 1960s to augment employment and income of the rural poor especially during the lean agricultural seasons. Several anti-poverty activities are currently being implemented by both the government and the non-government organizations (NGOs). These programs aim to contribute toward enhancing the entitlements of the poor, making them aware and empowered, and help them improve their quality of life. In addition, several other programs including the Food for Work (FFW), Vulnerable Group Development (VGD), construction and maintenance of rural infrastructure, and similar other programs are taken up for generating employment opportunities for the rural poor. On the other hand, several education expansion programs, such as, cash for education, special stipend and financial assistance, and free primary education also contribute to human development of the poor. About 58 percent of the government`s total budgetary allocation has been spent for poverty reduction activities (direct and indirect) in order to achieve poverty reduction targets of the government. The government is currently implementing as many as 87 different programs (including social safety nets) through different ministries/departments in order to support the disadvantaged people including women, children, elderly, and the disabled. These programs include: cash transfer programs; food security programs; micro credit for self-employment; and funds for poverty alleviation. In order to support these programs, an allocation of nearly Tk. 226 billion was made in the financial year 2011-12, accounting for about 14 percent of the national budget and 2.5 percent of the country‘s GDP. Some of the important cash transfer programs include: 100-day employment generation scheme, old age allowance, widow allowance, disability allowance, and others Major food assistance programs include: Food for Work, VGD, Vulnerable Group Feeding (VGF), and others. Various studies point out that the existing social safety net programs (SSNs) in Bangladesh provide limited coverage which cannot cope with the magnitude of extreme poverty and marginality that exists in the country. The SSNs cover about 15 million people, and consequently fall drastically short in coverage for about 24 million people who belong to the ‗extremely poor‘ category. Furthermore, the SSNs cover mostly the rural poor, whereas the number of urban extreme poor is also large and the nature of urban poverty is more severe than rural poverty in certain respects. It should also be noted that there is no integrated national policy for social protection and safety net programs in Bangladesh. Therefore, the extent, nature and mechanisms of most of the safety net programs undergo changes in an ad hoc manner especially with the change of the government. There is also a lack of integration and coordination among various safety net programs and the providers. A number of ministries are involved in implementing and monitoring the safety net programs. Primarily these programs are funded by donors whereas budgetary provisions are mostly ad hoc and given as block allocations. 30
Most of the poverty reduction policies and programs suffer from a number of limitations especially with respect to addressing the needs and demands of the extreme poor groups and creating opportunities for their upward mobility. Poverty reduction policies still concentrate more on reducing the ‗incidence of poverty‘, but, not so much on reducing its ‗depth‘ or ‗severity‘. This leads to inadequate attention to and coverage of the concerns of the extreme poor in the mainstream poverty reduction efforts along with less focus on understanding and addressing their graduation concerns. There is no denying the fact that there still persist gaps in knowledge for adequate understanding of the extreme poverty process as well as ‗capacities‘ in effectively targeting and delivering services to the poorest. Despite some positive implications of social safety nets programs, these suffer from a number of weaknesses (World Bank 2003; World Bank 2005; Chowdhury and Ali 2006; Majumder and Begum 2008; GoB 2008a). These include: inadequate resource allocation, limited coverage, inappropriate targeting, and leakages. Not a single safety net program has got nationwide coverage. Inclusion of non-deserving participants and exclusion of deserving ones in the targeted programs is a common phenomenon. Leakages are also common in most programs and it is more prevalent in in-kind programs than in in-cash programs. Funding is inadequate to reach the vast majority of the extreme poor in the country. There are capacity limitations in the system in targeting the beneficiaries and delivering the services efficiently. In most social safety nets programs, the primary focus seems to help the poorest to survive whereas the graduation process receives inadequate attention. There are some practical limitations in several anti-poverty programs that lead to exclusion of extreme poor households in these programs. Micro credit for self employment is one of them. If there is no eligible member in the household who can effectively utilize credit for income generation, micro credit operation cannot target these extreme poor households. Challenges in Targeting the Poorest Targeting the extreme poor requires more concerted efforts as they are more heterogeneous, have almost no resources which can act as entry points, and they are spatially scattered. These characteristics require innovative approaches in designing and implementation of anti-extreme poverty programs. The targeting of beneficiaries calls for context specific criteria to ensure coverage and avoid leakages in program implementation. It is, thus, important to take into account the complex, diverse and scattered nature of extreme poverty in developing new and innovative programs so that the specific needs of all groups can be covered within the purview of poverty reduction activities. An important compulsion in moving toward a paradigm that is more supportive to graduation of the extreme poor groups would be to: Look beyond the strategic thrust of reducing the ‗incidence of poverty‘ in order to focus more on the needs of the extreme poor; Identify context-specific and multiple entry points keeping the diversity of extreme poverty in view and devise programs that serve both immediate livelihood requirements and assist asset buildup leading to graduation; 31
Enhance capacity in targeting and delivering essential services to the extreme poor; Assess the needs of the poorest covering both survival and income generation and support sustainable activities; Devise innovative programs for the poorest including special programs by the NGOs; Undertake institutional measures and implement policies for strengthening both horizontal and vertical linkages of extreme poverty reduction efforts by creating interface between micro-meso-macro level compulsions. Expand the knowledge base surrounding the livelihoods of the extreme poor in order to design appropriate programs for specific groups. 3.4. Lessons from PRC’s Success in Reducing Poverty PRC‘s poverty reduction has been achieved in the context of its rapid economic growth. Real GDP grew at an average annual rate of 9.4 percent during 1979-2003, exceeding 10 percent in the first halves of the 1980s and 1990s. Moreover, sub-periods with faster economic growth saw more dramatic poverty reduction as well, such as in the early 1980s and mid 1990s. Since poverty in PRC has been a rural phenomenon (in the beginning of 1980s, incidence of urban poverty was only 0.3 percent compared with 28 percent in the rural areas), growth in rural areas (and rural-urban migration though on a limited scale) has been the most important factor in poverty reduction. Fast economic growth in the PRC was driven by a number of factors including continuous reform, structural changes, opening up to international trade, and knowledge and technology transfer. Structural transformations covered a number of areas such as shift from central planning to market, from agricultural to manufacturing and services, and from a closed to a globally integrated economy. Another important driver, PRC‘s poverty reduction policies, focused on providing opportunities by building assets for the poor and transferring assets to the poor, largely avoiding pure ‗handouts‘. Poverty reduction programs sought to enhance the income generating capacity of poor rural households, provide strategic investments in infrastructure, agriculture, and enterprises, and raise support to human capital development. 4. POVERTY IMPACT OF PRC’S ECONOMIC DEVELOPMENT ASSISTANCE TO BANGLADESH COOPERATION AND
This section specifies the areas of PRC‘s economic cooperation with Bangladesh and development assistance provided to the country and their possible poverty impact. While a rigorous impact analysis has not been feasible within the scope of the study, efforts have been made to explore case studies to substantiate the conclusions.
4.1 Economic Interest of PRC in Bangladesh After independence in 1971, diplomatic ties were established between Bangladesh and PRC in the year 1976. The cordial relationship between the two countries resulted in setting up, with Chinese assistance, of power plants and fertilizer factories, development of infrastructure including six friendship bridges, construction of modern convention center, modernization of marine fisheries, and similar other projects in Bangladesh. During the last thirty years, a number of visits took place at the level of heads of the government between the two countries. The economic relationship between the two countries has grown deeper over the years. Bangladesh has a huge and rising trade deficit with PRC as it imports a large quantity of different products from PRC and its exports to PRC are somewhat limited in quantity. In 2005, two countries signed nine accords -- five agreements, two memoranda of understanding (MoU), a contract and an exchange of letters. PRC also provided US$ six million for capacity building of Bangladeshi civil servants. Under an agreement on public security, PRC agreed to help in capacity building of Bangladeshi law enforcement agencies including providing training on criminal investigation techniques and technology and forensic tests. PRC and Bangladesh also signed an agreement on peaceful use of nuclear energy in the fields of medicine, agriculture, and biotechnology. In order to assist in narrowing the trade gap, PRC gave preferential access to 84 items for entry into China under the Hong Kong agreement in January 2006. PRC also considered import subsidy and tariff cut to boost Dhaka-Beijing trade. China offered cooperation in solving water problems and in management of different rivers in Bangladesh, including Brahmaputra. To deal with natural calamities, PRC offered its technology to the country's Disaster and Flood Warning Center. PRC has also been Bangladesh's one of the closest defense allies and the military cooperation between the two nations has reached the tactical level and there is much scope to elevate it to the strategic level for the benefit of both the nations. The Chinese political and military leaders, being well aware of Bangladesh's unique central geographic location and availability of sea ports, have given strategic importance to the country in South and South East Asian context. Bangladesh and PRC have signed defense cooperation agreements in 2002 and 2004 to broaden the scope of military relations between the two allies. 4.2 PRC’s Economic Cooperation with Bangladesh: Investment Patterns and Conditions Bangladesh is the third largest trade partner of PRC in South Asia. But the bilateral trade between the two countries is highly tilted in favor of Beijing. Bilateral trade reached as high as US$ 3.19 billion in 2006, reflecting a growth of 28.5 percent between 2005 and 2006. On the other hand, PRC has bolstered its economic aid to Bangladesh to address concerns of trade imbalance; in 2006, Bangladesh's exports to PRC amounted only about US$ 98.8 million. Under the auspices of the Asia-Pacific Free Trade Agreement (AFTA), PRC removed tariff barriers to 84 different commodities imported from Bangladesh and is working to reduce tariffs over the trade of jute and textiles, which are among Bangladesh's major export products. PRC has also 33
offered to construct nuclear power plants in Bangladesh to help meet the country's growing energy needs, while also seeking to assist in the development of Bangladesh's natural gas resources. On transportation side, PRC and Bangladesh have agreed to start a direct air transport route between Dhaka and Beijing via Kunming. Also Kunming-Chittagong road link through Myanmar is being considered. In 2010, Bangladesh and PRC decided to establish a ‗Closer Comprehensive Partnership of Cooperation‘ from the strategic perspective and on the basis of the principles of longstanding friendship, equality, and mutual benefit. Within the above framework, the two sides signed the Agreement on Economic and Technical Cooperation, the Framework Agreement on Providing Preferential Loan, the Protocol on Remitting the Bangladesh Interest-free Loan due in 2008 and the Exchange of Letters on the construction of the seventh Bangladesh-China Friendship Bridge. The two countries agreed to intensify efforts for the early start of such further projects as the eighth Friendship Bridge and the construction of the Bangladesh-China Friendship Exhibition Centre to be undertaken by PRC. Both countries also agreed to encourage and support their own enterprises to carry out twoway investment and mutually beneficial cooperation, and provide facilitation for enterprises of both sides in project contracting and labor service cooperation. They also agreed to enhance transport links and, to continue to discuss the possibility of building road and rail links between the two countries. Based on the MoU on agriculture cooperation signed in 2005, the two sides agreed to actively carry out cooperation in hybrid rice cultivation technology, including hybrid rice seed production technology, agricultural machinery technology, exchange of germ plasm resources of crops, farm products processing, and technical personnel training. The two countries also agreed to strengthen cooperation on water resources management, hydrological data sharing, on flood control and disaster reduction, based on the exchange of letters between the ministries of water resources of the two countries in 2005. PRC agreed to provide assistance to Bangladesh for dredging of riverbeds and for capacity building through training of personnel. 4.3 PRC’s Development Cooperation with Bangladesh: Case Studies PRC‘s development cooperation with Bangladesh has deepened over the years. PRC has been providing increasingly more support to various development activities and its total volume of development assistance to Bangladesh has also increased over the years (Table 9). The volume of assistance, however, doesn‘t exhibit any systematic trend (Figure 4). PRC‘s assistance to Bangladesh is relatively small compared with other development partners, let alone the OECD and OPEC countries and multi-national aid agencies. PRC‘s total assistance to Bangladesh as percentage of total assistance received from countries other than OECD, OPEC and multilateral donors is 5 percent for food aid, 4 percent for commodity aid, and 10 percent for project aid (Table 10).
Figure 4: Trends in PRC’s Assistance to Bangladesh
The total assistance received by Bangladesh from PRC since the beginning of cooperation amounts to US$ 272 million of which food aid is US$ 11 million, commodity aid is US$ 14 million and project aid is US$ 247 million (Table 10). Project aid clearly dominates the total volume. In respect of the types of assistance, loan amount also dominates the total assistance as it accounts for about 85 percent of total assistance.
Table 9: Commitment and Disbursement of Aid from PRC to Bangladesh (million US$) Commitment Year 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 Grant 0 2.457 0 0 1.17 19.047 0 0 0 0 0 0 0 0 0.241 0 7.228 Loan 8.868 0 0 0 0 52.557 10.358 0 0 12.959 11.292 0 5.502 8.5 0 0 12.041 Total 8.868 2.457 0 0 1.17 71.604 10.358 0 0 12.959 11.292 0 5.502 8.5 0.241 0 19.269 Grant 0 0 0 0 3.627 0 4.621 2.902 0.578 0 0 0 0 0.012 0 0 0 Disbursement Loan 6 14.014 18.872 22.811 6.238 1.539 5.158 3.633 3.345 6.363 7.333 3.639 10.748 0 0 0 9.855 Total 6 14.014 18.872 22.811 9.865 1.539 9.779 6.535 3.923 6.363 7.333 3.639 10.748 0.012 0 0 9.855
1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Total Source: ERD 2011
24.145 0.725 0 0 6.041 13.29 9.665 10.5 30.001 0.12 8.96 8.96 29.42 171.97
0.241 12.079 12.079 24.161 0 6.041 0 0 0 211 2.24 2.24 22.83 414.988
24.386 12.804 12.079 24.161 6.041 19.331 9.665 10.5 30.001 211.12 11.2 11.2 52.25 586.958
0 0 0.242 8.404 0.265 0 0 0.991 0.103 0 14.631 6.536 0 42.912
2.24 0 17.486 17.279 12.081 0 18.123 32.715 2.578 0 0 0 222.05
2.24 0 17.728 25.683 12.346 0 0 19.114 32.818 2.578 14.631 6.536 0 264.962
Table 10: PRC’s Assistance to Bangladesh Compared with Assistance Received from Other Donors (1971/72 to 2009/10) (million US$) Donor Food Aid Commodity Aid Project Aid Grant PRC Other donors (except OEDC, OPEC & multilateral agencies) PRC‘s assistance as % of others Source: ERD 2011 2.17 156.53 Loan 8.45 53.45 Total 10.62 209.99 Grant 234.05 Loan 14.47 93.30 Total 14.49 327.35 Grant 39.27 43.41 Loan 207.58 2515.00 Total 246.85 2558.41
Contribution of PRC’s Cooperation to Poverty Reduction and Inclusive Growth in Bangladesh: Challenges and Opportunities
Although PRC is not among the largest development partners of Bangladesh, it is one of the closest trade partners and providers of strategic development assistance. PRC has been assisting Bangladesh in building infrastructures and transport links, constructing power plants and fertilizer industries, and managing water and disaster related challenges. It is also contributing to capacity building in different areas of development priorities. It has also been contributing significantly to improving defense capabilities. The cooperation in such diverse and development-supportive areas certainly has significant direct and indirect impact on employment generation, market linkages, agricultural and industrial development, and economic 36
growth. In turn, the cooperation has significant positive impact on poverty reduction in the country although it is not possible to quantify its magnitude within the limited scope of the present study. As we have noticed from the poverty reduction experience, the policies and programs adopted by PRC have been successful in transferring assets to the farmers, providing farmers with necessary support to enhance productivity, facilitating development of village and township enterprises, and implementing targeted poverty alleviation programs, which together contributed to significant decline in poverty. The rich experience of outstanding poverty reduction efforts in PRC may be replicated, with appropriate modifications keeping socioeconomic realities in view, in Bangladesh through its bi-lateral assistance, as Bangladesh still has a huge population (50 million) living below the poverty line income. In particular, Bangladesh‘s agriculture may be supported by technical and financial assistance from PRC. Bangladesh‘s growing non-farm activities may also be re-organized and augmented with support from PRC. Although Bangladesh has a large number of targeted poverty alleviation programs, its coverage is still limited compared with the large number of potential beneficiaries. The quality of implementation of these programs can also be significantly improved. PRC can certainly assist Bangladesh in providing additional funds for targeted poverty alleviation programs and assistance for implementing them more efficiently. 5. SUMMARY AND LESSONS FROM PRC’S POVERTY SUCCESS: IMPLICATIONS FOR BANGLADESH REDUCTION
This section summarizes the differing stories of poverty reduction of Bangladesh and PRC in order to draw important lessons. More specifically, the section uses the experience of PRC to identify the inadequacies of the recent growth and poverty reduction process of Bangladesh and suggest policies in the light of the lessons learned from PRC‘s experience. In this context, the focus has been placed on several specific issues, such as lessons from PRC to address rural poverty; limitations of the PRC example to address urban poverty in Bangladesh; the need for committed institutional framework and the possibility of replicating PRC experience in Bangladesh; and the implications for a more pro-poor sub-regional cooperation with PRC. 5.1 PRC’s Key Factors of Success PRC‘s poverty reduction plans benefited from continuing macroeconomic and political stability, sustained economic growth, and unfading government effort to seek effective institutional and policy measures to reduce poverty. The central and local governments showed strong resource mobilizing capacity; working on poverty programs across government departments; and with different enterprises, financial institutions, NGOs, and international organizations. Institutional innovation allowed for enhancing the existing government administrative system by emphasizing the comparative advantage of each government department and for reducing administrative costs. Interest in learning and experimentation under the Plan permitted PRC to learn from its own and international experience and work toward improving the participation and effectiveness of a large number of projects at village and household levels. The implementation of the 8-7 Plan, for instance, revealed relatively weak poverty reduction effect of subsidized 37
loans program and the complexity of the needs of poor villages, prompting the Government to launch multi-sectoral rural development projects (such as South West Poverty Reduction Project, SWPRP). Stable political environment and rapid economic growth established an important context for successful poverty reduction in PRC. Between 1978 and 2002, China‘s GDP per capita increased by 5.2 times which itself contributed to poverty reduction. The elasticity of poverty reduction with respect to growth was about -0.8, implying that each 1 percentage point of GDP growth brought about 0.8 percentage point drop in the number of the poor. Poverty reduction in PRC remained highly correlated with agricultural GDP growth. Empirical analysis on sectoral changes and poverty rates reveals that poverty in PRC is highly sensitive to trends in agriculture. Poverty reduction in PRC benefited from the rapid development of the non-state economic sector. Private enterprises increased the employment of rural workers by 25 million during 1990-1997, which accounted for more than half of the new off-farm job opportunities in the rural areas. Encouraging rural-urban migration, jobs created in the non-state sector in the urban areas also benefited rural workers, with their remittances raising income levels in villages. Government commitment to poverty reduction remained strong throughout the implementation of the Plans. The government placed emphasis on assisting the poor and has repeatedly proclaimed assistance to the poor and poverty reduction as its key responsibility. The strong resource mobilizing capacity of the government was another critical factor. The central government not only expanded the scale of poverty reduction programs, but also mobilized government agencies, social groups, and other enterprises to undertake fixed-target poverty reduction programs. It also prompted local governments to actively participate and encouraged NGOs and international organizations to join in poverty reduction. The implementation of the poverty reduction plans was supported by the established administrative system at all levels. Adopting the existing administrative system to manage poverty reduction programs and implement the projects allowed saving costs. Institutional Innovations China turned its poverty reduction strategy from relief dependence to poverty reduction emphasizing development. Before the mid-1980s, the main poverty reduction method in PRC was relief from which the effect on the poor was immediate but not sustainable. China adjusted its poverty reduction strategy to focus on promoting regional and rural development to raise income and self-help capacity of the poor. The targeting of the poor counties was complemented by targeting of poor villages and households. More innovative programs were launched involving, for example, microcredit, labor migration, and resettlement. PRC moved from a government-led to a broadly based poverty reduction effort. With growth in income of both rural and urban residents and the rising size of the non-state sector
including NGOs, poverty reduction in PRC began to involve multiple players and wider range of activities. China set up a multi-departmental coordination mechanism. The establishment of the LGPR and its Office at the central level was followed by similar structures at lower levels of government all over the country. In addition, government ministries and agencies participating in the fixed-target poverty reduction initiative set up their own poverty reduction offices. One important function of the LGPR is to coordinate multi-departmental poverty reduction efforts and activities and utilize resources and specialized skills of different government departments to jointly promote the development of poor regions while maintaining normal operation and functions of these departments. Learning and Experimentation PRC’s poverty reduction has been a process of constant learning and experimentation. Over the decades, China‘s poverty reduction strategy and its management have been continuously improved based on experiments and learning. The LGPR conducts analysis, collects feedback from central and local levels, draws lessons, and influences nation-wide poverty reduction policies and adjusts poverty reduction programs. For sharing and disseminating knowledge, agencies involved in poverty reduction organize annual workshops to learn lessons and benefit from outside expertise. 5.2 Lessons from PRC’s Success Economic growth is critical PRC‘s experience indicates that economic growth can benefit all population, while poverty reduction investments can assist those localities and households that, for various reasons, are constrained from benefiting fully from economic growth. China‘s growth was pro-poor particularly in the early stages of the post-1979 reform period, when reforms were implemented for bringing fair land distribution and more efficient land utilization in the rural areas, increasing agricultural procurement prices, and promoting labor intensive off-farm activities through the expansion of township and village (rural) enterprises. Sustained and rapid economic growth enables the economy to generate more government revenues to finance poverty reduction programs, create new off-farm job opportunities, and promote rural-urban migration as most productive jobs will emerge in urban rather than in rural areas. Rising returns to farm labor through out-migration, farm land consolidation, and agricultural growth would enable the rural poor households to overcome poverty. Without poverty reduction, low effective demand and low productivity would constrain economic growth. Without equitable sharing of the benefits of growth, the widening rich-poor gap (which, in most cases, is primarily the urban-rural gap) would undermine social cohesion and thus economic growth as well.
Targeting and participation of the poor matter PRC‘s experience shows that geographical (area) targeting needs to be carefully designed and complemented by household targeting. Unless the poor (especially poor women) actively participate in the process of fund allocation, program identification, and impact evaluation, their needs would be poorly understood leading to their continued marginality. Success needs supplementing area-based poverty reduction efforts with a household-oriented approach The traditional area-based poverty reduction efforts require supplementary household-oriented approaches and interventions. Such a focus on household-oriented approaches has a broader cross-cutting relevance for the poverty reduction agenda. This will also sharpen suitable household targeting mechanisms to reach the poor and help improve the overall targeting effectiveness of different programs. Basic insurance acts as complement to poverty reduction effort Basic insurance programs can significantly reduce the vulnerability of the poor households to move into deeper poverty and non-poor households to poverty. Rural households in PRC as elsewhere are susceptible to risks that make them extremely vulnerable to poverty. For example, illness and disability are one of the main causes of poverty in the rural areas. In addition to development-oriented poverty reduction programs, basic social security network, especially minimum living standard subsidies (a minimum income maintenance scheme) and basic health insurance are particularly needed in the rural areas. PRC‘s experience with rural medical cooperatives and other measures to enhance the households‘ ability to cope with risks can provide useful lessons in this regard. Setting clear objectives is important Poverty reduction efforts need to involve clear goals and objectives in order to be efficient and effective. Similarly, clear focus on poverty reduction makes poverty reduction programs successful.12 Human development deserves special emphasis PRC‘s experience shows that human development is very effective in poverty reduction especially in the longer term. Initial emphasis in PRC‘s poverty reduction strategy (e.g. in the 87 Plan) was put on investment in physical facilities as the time needed for such investment to contribute to raising income generating capacity of the poor was short and the infrastructure needs in the rural areas were enormous. This led to improved production conditions, e.g. farm
For example, under the 8-7 Plan, a conflict seemed to have existed between development goals and poverty reduction objectives (fuxian and fumin). As a result, poverty reduction objectives were often sacrificed by the local governments in favor of economic growth and fiscal revenue generation. On the other hand, participatory village planning and integrated community development experiments in Gansu created positive results in mobilizing the poor to actively engage in community development and in ensuring better targeting of poverty funds.
land and irrigation, and living conditions (including drinking water and electricity) in the rural communities.13 Empirical analysis suggests that public investments in rural education and public health have been very effective in reducing poverty especially in the longer term (Fang, Zhang and Zhang 2002). The poor farmers need to possess health and skills to enable them to improve crop selection, production efficiency, market access, and avail off-farm employment opportunities to supplement farm income. As such, human development needs special attention for which poverty reduction programs can complement but not act as a substitute for adequate funding and programs within respective sectors. Adequate allocation of resources for the local governments is critical Local governments are at the frontlines of service delivery, social protection, and poverty reduction. But the local governments, in most cases, have very low revenue-raising capacity and this is only partly mitigated by transfers from higher levels of government. Implementing the poverty reduction agenda requires that the local governments all over the country have the resources to provide adequate quantity and quality of the basic services and protection to the population under their jurisdictions. Effective coordinated approach is the key PRC‘s experience brings out the fact that a strong institutional coordinating capacity is needed for bringing out the synergies of various programs of different government and non-government actors to create an integrated approach to poverty reduction. In this context, the strategy of integrated poverty reduction through participatory village planning can be a big step forward as the recent Chinese approach indicates. However, in order to be effective this needs to be complemented by strengthening coordination mechanisms at the upper levels. Rural-urban segmentation obstructs poverty reduction The long established rural-urban segmentation which exists in various degrees in different countries constrains the rural population from accessing the benefits more fully of increasing opportunities of the growing economy. Although reducing rural-urban segmentation and integrating rural and urban populations remained high on the agenda of institutional reform in PRC since the early 1980s, several constraints including obstacles to rural-urban migration and segmented social security, public service delivery, and public finance management significantly restricted the rural poor population from benefiting from the growing economy. In turn, this
Another reason for providing relatively low attention to human development under the 8-7 Plan and preceding poverty reduction efforts related to the low return on education in China especially due to serious distortions in the labor market until late 1990s. Empirical analysis shows that the private rate of return to education in China was about 4 percent in the early 1990s and 8 percent in 1999. This was below the estimated rate of return to physical capital in industry, estimated at 20 percent. Returns to secondary (senior high school) and tertiary education, however, increased sharply in the late 1990s. On the other hand, the social rate of return to education is estimated to be as high as 30-40 percent in the late 1990s which is more important for poverty reduction, See Heckman 2003.
makes achieving the poverty reduction goals more difficult. Thus, measures to reduce the obstacles to rural-urban migration, introduce basic social security schemes and strengthen education and health services in the rural areas, and reform rural financing institutions, and similar measures to reduce the disadvantages of the rural poor are important for poverty reduction. Success in poverty reduction, as the experience of PRC shows, requires adoption of balanced economic and social development goals through constantly adapting development strategies to changing economic and social traits, adjusting patterns of economic and social development to emerging realities, and improving development environment and capabilities of poor rural areas and disadvantaged groups. More importantly, sustained efforts are needed to (i) intensify institutional reforms to provide momentum for poverty reduction through enhancing productivity, raising effectiveness of resource allocation, and ensuring stable growth of income of rural and urban residents; (ii) promote sound development in key social and economic areas to lay a solid foundation of poverty reduction; (iii) speed up balanced development of rural and urban areas and between different regions to create a favorable climate for poverty reduction; and (iv) adopt specialized programs of rural poverty reduction to forge integrated development of human, natural and economic resources. Realizing the potential of migration needs more explicit recognition Migration and remittances play an important role in poverty reduction in the rural areas. However, migration‘s effects on poverty are limited by the inability to migrate by many of the poor. The relationship between migration probability and per capita income usually shows an inverted-U shape showing that both the poorest and the richest are less likely to migrate though for different reasons. On the other hand, although migration is an important means of raising incomes of the poor rural households, it has also some adverse consequences in the source areas, e.g. negative effects on education of the rural youth, greater vulnerability of the left-behind households, and erosion of village cohesion and community participation. In view of the significant positive contribution of migration to poverty reduction, several policy initiatives may be considered to better realize its potential.14 Adapting to climate change is important for the poor Aggregate growth originating in agriculture is more effective in reducing poverty than growth outside agriculture (World Bank 2008). China‘s rapid growth in agriculture-- mainly due to the household responsibility system, liberalization of markets, and rapid technological change—has largely been responsible for remarkable decline in rural poverty. For further strengthening the role of agriculture in the economy, both Bangladesh and PRC need to review the growth of agriculture taking explicit consideration of climatic factors. In both countries, people especially the poor, have weaker adaptability to climate change risks and thus are more likely to become the victims of livelihood insecurity and deeper poverty.
In PRC, several initiatives are underway in different areas, such as Opinions of the State Council on Issues Concerning Rural Migrant Workers (SC Document No. 5, March 2006); MOLSS Circular on the Implementation of SC Document No. 5; and action plans of the inter-ministerial Joint Conference on Rural Migrant Issues established in 2006.
Facing with the threat of climate change on agricultural production and food security, there are both long term challenges for improving agricultural adaptability and defending capacity to climate disasters as well as adapting to climate change induced situations to sustain livelihoods. The strategies and policies relating to integration of poverty reduction with mitigation and adaptation to climate change adopted by PRC can provide important lessons for Bangladesh. In ensuring success, it becomes important to recognize the poor‘s own strategies of adaptation to climate change through agricultural production adjustment, production development options, and other alternative livelihood activities. In such efforts, external support is necessary in view of the low level of assets and insurance available to the rural poor. In addition, the options for adopting climate change sensitive poverty reduction strategies and mitigation policies and setting up of compensation mechanisms for the poor population highly exposed to climate change risks are relevant considerations for enhancing the poor‘s autonomous capacity to adapt to climate change risks and reducing livelihood vulnerability.
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