A question on Pakistan's GDP growth.

Gauss said:

50 billion in ten years would be 5 billion per year. 10% of 5 billion is 500 million. Pakistan's GDP is 232 billion. 500 million makes 0.2% of 232 billion. So there you have it, investment of 5 billion per year will add 0.2% to our GDP growth rate.

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not exactly......................

read up "multiplier effect"..........

No gausss nooooo. Its not that. the amount doesnt just get injected and get static. the amount injected creates more growth and businesses, hence gdp growth.

And zia ulislam u are defo painting a pessimist outlook.
And seemingly focusing on a specific aspect only. Ok lemme get into this.
Your country's labr force isnt just doctors engineers phds etc as u are showing, it is all kinds of labor force skilled ,semi skilled, unskilled.
The skilled and semi skilled consists of plumbers, masons, and other vocational skills.
Why makein india campaign will fail,because they dont have trained manpower.
Why chiina,japan attained such remarkable developments.
China had established formal training centres to create a large trained workfoce accross the whole country(i am not talking about doctors engineers here),and hence they are the manufacturing hub of world.
And a lot depends on the type of economy ur country is. Its gdp is urban centric or rural centric.
Ab meray dimag ka soup ban chuka hai.

The conclusion that the $50 billion alone with boost GDP growth significantly relies on the assumption that the only binding constraint to growth is the lack of sufficient capital.

What it is likely to do, if deployed properly, is loosen some of the other binding constraints on the economy, particularly energy availability. Even this however, will be a mixed blessing, because such a massive inflow of funds will cause a terms of trade improvement and, consequently, a fall in exports. India's experience with large FDI inflows has been that manufacturing stagnates (again because of the currency appreciation)- this was a particular problem during the first BJP government when foreign inflows really took off. Prioritising what FDI comes in and how it's used is crucial.

Many on this thread have pointed to a lack of skilled manpower. In that respect, Pakistan and India are quite similar. There is a very capable 'elite' workforce- our IITs/IIMs, your LUMS/NUST etc. However, the core of the workforce is still grossly under skilled. This is the ultimate, medium to long term binding constraint.

There is finally a focus on these issues in India. There is a brand new skill development ministry that has started skill based training on a massive scale and of a quality that we haven't seen before. In a state where my organisation provides development finance, the first phase of skill based training last year, trained 100,000 people. The training is professional, the labour market outcomes of the trainees are tracked and they will be retrained as required. Our ITIs (essentially vocational colleges/polytechnics), which have thus far been unmitigated disasters, are also being upgraded considerably. My organisation works in the education sector in Pakistan as well, but in traditional higher education, which seems to be the wrong focus.

M.SAAD said:

The Literacy rate in Pakistan is 60%, means 40% population is still uneducated in the country..

While the literacy rates of US,UK,China are 99%. That pretty much sums it up.

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even 60% figure is defined as those who can barely read an urdu newspaper

Shamain said:

No gausss nooooo. Its not that. the amount doesnt just get injected and get static. the amount injected creates more growth and businesses, hence gdp growth.

And zia ulislam u are defo painting a pessimist outlook.
And seemingly focusing on a specific aspect only. Ok lemme get into this.
Your country's labr force isnt just doctors engineers phds etc as u are showing, it is all kinds of labor force skilled ,semi skilled, unskilled.
The skilled and semi skilled consists of plumbers, masons, and other vocational skills.
Why makein india campaign will fail,because they dont have trained manpower.
Why chiina,japan attained such remarkable developments.
China had established formal training centres to create a large trained workfoce accross the whole country(i am not talking about doctors engineers here),and hence they are the manufacturing hub of world.
And a lot depends on the type of economy ur country is. Its gdp is urban centric or rural centric.
Ab meray dimag ka soup ban chuka hai.

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i am painting a realistic picture.
people should pressurize govt to work on education rather than feeling jubilant and jumping on there seats on promises and mega projects..

Shamain said:

No gausss nooooo. Its not that. the amount doesnt just get injected and get static. the amount injected creates more growth and businesses, hence gdp growth.

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What you are saying was fully accommodated in my estimate. Its just that there are some other problems with that estimate.

Faiez said:

not exactly......................

read up "multiplier effect"..........

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You can't quantify this effect so well. How it will work out depends on many conditions.
The $50 billion investment is huge.

This graph shows FDI net inflow as a percentage of GDP, it has been pathetically low since 2009. No good at all especially for a developing economy. $50 billion over even 20 years would raise the net inflow compared to GDP above 1% for the first few years only, when Pakistan's GDP increases this ratio will decrease.


And this is one way in which we have growth, year on year, the FDI of the previous years, the benefits still circulate in the economy, that's partly to do with the multiplier effect mentioned above.

But FDI alone isn't enough, it is not a magic cure. It's incredibly helpful, but there a few major milestones before we have the capacity to grow; energy crisis, law and order, terrorism/security, political stability, most important is the last one.

After that, then you might start seeing stable growth if the right policies are used. With the current situation it is exceedingly difficult to have growth without the right conditions.

Myanmar get $8.1 billion FDI last year, but for some reason can't seem to attract much.

Jungibaaz said:

You can't quantify this effect so well. How it will work out depends on many conditions.
The $50 billion investment is huge.

This graph shows FDI net inflow as a percentage of GDP, it has been pathetically low since 2009. No good at all especially for a developing economy. $50 billion over even 20 years would raise the net inflow compared to GDP above 1% for the first few years only, when Pakistan's GDP increases this ratio will decrease.

And this is one way in which we have growth, year on year, the FDI of the previous years, the benefits still circulate in the economy, that's partly to do with the multiplier effect mentioned above.

But FDI alone isn't enough, it is not a magic cure. It's incredibly helpful, but there a few major milestones before we have the capacity to grow; energy crisis, law and order, terrorism/security, political stability, most important is the last one.

After that, then you might start seeing stable growth if the right policies are used. With the current situation it is exceedingly difficult to have growth without the right conditions.

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My point is that it's not WHERE the investment is coming from....Investment is investment, doesn't matter where its coming from. But with FDI, its easy to get (compared to local investment), this is because local investors thoroughly know the real picture, foreign investors just throw money with eyes closes at times. FDI is nothing. What you need is long term sustainable investment from local investors.

Also, tax rates in pakistan are FAR too high. They are killing business. And all of this tax money goes into projects which shouldn't be that high on priority list plus even in that there's massive corruption (projects costing several times as much as they should compared to costs in other countries). So it's government's poor investment efficiency that's one of the main problems. They take capital from taxpayers and throw it where it's not even feasible/sustainable and benefit to people is less than cost to people. This kills business. If they don't know how to invest, then lower tax rates and let people do what they want to do with their money.

Few things people are not getting. Yes $46 billion investment is for 3 years, but its not like China will stop investing after 2018. One of major reasons for slow down in economy is energy shortages, when projects are completed by 2018 gdp growth will increase and not go back down to 4%.

$46 billion investment will have long term benefits and not just for 2-3 years.

Education education education education... We NEED to get kids education. And im not talking about memorizing the Quran or just learning how to read a newspaper... We need our future generation to get the best type of education in primary school then move on to college and then become a part of the educated work force. I can safely say that if this generation is not educated Pakistan will go to waste and be third world forever no matter how big the GDP is.

Gauss said:

50 billion in ten years would be 5 billion per year. 10% of 5 billion is 500 million. Pakistan's GDP is 232 billion. 500 million makes 0.2% of 232 billion. So there you have it, investment of 5 billion per year will add 0.2% to our GDP growth rate.

Edit : Take this estimate with a pinch of salt. I am not an economics expert.

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No dear its a lot more complicated than that

Horus said:

Can we maintain stable 5% growth?

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yes. hopefully if the 50bn coming in becomes a reality.

we are talking about an average $5bn every year.. Our GDP for this year will be around $300bn. Assuming everything else stays the same, 5bn additional investment next year will translate into 1.6% of additional growth. This will keep on decreasing as GDP grows - making 5bn a smaller proportion of our GDP with each passing year.

Above analysis is very crude. There will be other +ve effects of this investment in the form of improved infrastructure and trade linkages. This will increase GDP growth even further.

However, most of the people here are mistaken that Chinese are coming on the 20th to sign $50bn worth of agreements. My guess is that this $50bn includes many MoUs which may or may not translate into tangible investment.

Another thing.. most of this is not Chinese investment. It is Chinese loan to our Government especially the energy projects. Therefore, the correct thing to say will be that it is our own government which is investing in majority projects.

ziaulislam said:

in nutshell, whenever a new party comes int o power it looks for think tanks for sustainable growth, every time, every party gets the same answer and every party throws it in the dustbin !
the answer is education and health.

even PML N on day first came up with 180 billion rupees of emergency education package but than later on threw into dustbin


let say we build a 2.3 billion dollar road this would instantly add 1% gdp growth to your country
50 billion in 5 years will instantly add 3-4% to existing growth our 5 years. i am not counting the other effects, just counting the project itself.

investment is not a function of growth rate but investment adds to growth

fact is if we miss education now, we are doomed for next 30 years, we we missed it in 60s and 70s and were doomed till today

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Sir what do you mean by gdp ? How you know if two to three billion dollars put in to road construction will lift your gdp growth by 1% ??

zip said:

How you know if two to three billion dollars put in to road construction will lift your gdp growth by 1% ??

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using statistical data acquired from a human butt.

Icewolf said:

No dear its a lot more complicated than that

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Take it easy bro. GDP is a real simple thing. Its the total value of all goods and services produced in a country. That means for Pakistan's GDP we add up the value of all the things made in Pakistan that are meant for consumption. The value of a good used to produce another good isn't counted. For example, the value of a bale of fodder given to a cow doesn't count but the value of the milk or meat produced is counted. Because its for end user consumption. The other thing that gets added in GDP is the value of all the services produced in the country. Like the service of a teacher, service of a doctor, service of a policeman etc. Their wages represent the value of their services. So we add up all the wages paid in the country in a year.
I made a big mistake there. I just had the GDP calculation of "wages + profits" in my mind. So I took that the profits and wages on Chinese ventures will be 10% of their investment and I assumed that to be their contribution to the GDP. But actually there is no need to use that calculation of GDP here. We can simply use GDP = consumption + investment + government spending + net exports. So all Chinese investment adds up to the GDP. Hence they will add around 1.6% to Pak's GDP growth as @ajpirzada said. I understood my mistake right away but I kept it that way to deflate noora fans.
Ofcourse we can use "wages + profits" to get the same result as well but I wont tell how.