Paradox of economic growth and productivity: The LDC scenario

Despite vigorous economic growth, lack of sufficient productivity has stalled the LDCs' (least developed countries) move to desired levels of development. The recently released UNCTAD (United Nations Conference on Trade and Development) Report on the LDCs titled 'Growth with Structural Transformation: A Post-2015 Development Agenda' highlights this as the key factor as well as a paradox.  Although the growth of the LDC economies exceeded the 7.0 per cent target from 2002 to 2008, and even after the 2008 financial crisis they grew faster than most developing countries -- at an average of 5.7 per cent per year -- it is this paradox that remains as a stumbling block to their making any remarkable headway.
The LDC paradox, according to the Report, arises from the failure of these economies to achieve structural changes despite having grown vigorously as a result of strong export prices and rising aid flows. Some other developing countries -- not categorised as 'least developed' -- especially those that mostly depend on commodities for production, employment and exports have also faced a similar situation, the Report says. Citing this with a note of caution, the Report urges that 'the international community must learn from the failure of most of the poorest countries to meet the Millennium Development Goals (MDGs) despite registering strong economic growth.'
Under the MDGs, global poverty was halved by rapid progress in the more advanced developing countries, the report says. But a central goal of the post-2015 development agenda is expected to be the eradication of poverty by 2030.
In achieving this, the task will be most challenging for the LDCs. Their performance will largely determine the success or failure of the whole post-2015 development agenda. Eradicating poverty in 15 years is a much more ambitious goal than the MDG target of halving it in 25 years, the report said.
The main focus of the Report is on the progress of the LDCs and a close scrutiny as regards the extent of their expected attainments in the context of the MDGs as well as the post-2015 Development Agenda dubbed Sustainable Development Goals (SDGs). In doing so, the Report has highlighted the following as key impediments to the LDCs' move forward in a sustained manner:
* LDCs are trapped in a vicious circle of economic and human underdevelopment. Real economic progress and achieving the planned SDGs (Sustainasble Development Goals) depend on reversing this process in order to unleash an upward spiral of economic and human development by harnessing the synergies between the two.
* Economic growth is not enough. It must be accompanied by structural transformation and the creation of jobs in higher-productivity activities.
* The 'LDC paradox' is rooted in the failure of the MDGs to recognise the need for a policy framework that generates transformative growth, and in the inability of the LDCs to achieve structural transformation.
While pointing out the lacunas so essentially embedded in the LDC economies, the Report also focuses on three critical policy areas:
i. Resource mobilisation - to generate a strategic and selective approach to domestic investment and foreign direct investment.
ii. Industrial policy - to direct those resources into sectors and activities that promote structural transformation. It should follow a dual track, developing sectors of current comparative advantage and at the same time anticipating and promoting changes in comparative advantage.
iii. Macroeconomic policies - to support structural transformation.
One of the policy measures suggested in the Report is about putting a dynamic thrust on women entrepreneurship. Since women constitute a large proportion of the population in the LDCs and are important contributors to both social and economic development, especially in rural areas, the Report proposes a new international support measure, Female Rural Entrepreneurship for Economic Diversification (FREED) to bolster the development and consolidation of women's enterprises in non-farm activities in rural areas in the LDCs.
 Given the state of things, it will indeed be a shock for Bangladesh if its aspiration to graduate from the LDC league to the middle income status in the near future -not to mention the time frame of 2021, so optimistically speculated upon by the government - turns out not to be realistic. This has been explained at length at a press briefing organised by the think tank Centre for Policy Dialogue (CPD) in Dhaka the other day on the occasion of global launching of UNCTAD's LDC Report-2014. 'It will take at least a decade for graduation even if we become highly ambitious' said Debapriya Bhattacharya, Distinguished Fellow of CPD, while deliberating on the pros and cons of measuring the indices by the UNCTAD.
As for the findings by UNCTAD, there is no arguing that robust exports have kept the growth momentum of the LDC economies. Bangladesh, no doubt, is a glaring example, although the grim reality remains that the bulk of its export remittances comes from a single sector -- currently fraught with many challenges -- the readymade garment (RMG) sector. Along with the RMG remittances, expatriate workers' remittances have been the key to much of the resources that apparently lend a rosy picture, but surely not rosy enough as uncertainties pertaining to export prices and movement of workers are potential threats to sustaining the growth momentum. This is precisely why the need for structural change, especially in putting thrust on productivity, industrial policy and investment emerge as the sole determinants of sustainable progress.
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