Effects of Fiscal Policy on economic growth

The issue concerning the effect of fiscal policy on growth is quite old. However, recently the extent to which fiscal policy affect growth has attracted both theoretical and empirical debate especially in the developing countries due to budget deficits, existing governance issues and their aspiration to move up the ladder of growth.

Fiscal policy is an important policy of the government for the overall management of the government’s revenues and expenditures required for maintaining macroeconomic stability and growth.

Public financing in Bangladesh has gone through diverse changes over the past few decades. Overview of the fiscal policy variables as percentage of gross domestic product (GDP) and per capita GDP growth of Bangladesh spanning from 1980-2017 are presented in figure 1.

It is evident that government expenditure, i.e. both government consumption and investment, along with revenue and private investment have all experienced a gradual increase over the decades. From FY 1980-81 to FY 2016-17, government expenditure has moved up by 2.65 per cent from 10.86 per cent to 13.51 per cent. Revenue performance oscillated, varying from 5.70 to 8.73. Budget deficit also varied between lowest in FY 2010-11 and highest in FY 1990-91. Largely on average, budget deficit remained below 06 per cent of GDP. Private investment as percentage of GDP has doubled from FY 1980-81 to FY 2016-17. Per capita GDP growth has been quite impressive and over the last eight years, it has remained over 05 per cent. So the question arises: are government expenditure and revenue collection playing any role in the growth of the country?

Budget deficit of Bangladesh has been lower than other lower middle-income countries. Consequently expenditure-GDP ratio and revenue-GDP ratio is still lower than neighbouring India and other lower middle-income countries. Therefore, it will be interesting to understand how the different fiscal instruments affect growth in the overall macro-policy as well as governance, as fiscal performance also depends on it.

Against this backdrop, a study was conducted at the Bangladesh Institute of Governance and Management (BIGM). This study investigated the impact of key fiscal instruments: government investment, revenue and budget deficit, on growth by examining the governance indicators. Additionally, this study delved into this impact under three different scenarios: aggregate investment-GDP and revenue-GDP ratio impact; impact of budget deficit; and PCA (principal components analysis) constructed fiscal policy impact. Employing ARDL (Autoregressive Distributive Lag) technique, findings posit in the context of Bangladesh fiscal policy played a significant positive role in economic growth though its effectiveness and significance eroded to a certain extent in the presence of governance indicator. The findings concluded that over the study period, the overall governance, risks and uncertainty issues of Bangladesh were not holding back its growth and development. However, improvement of governance perspective will certainly enhance the productivity of fiscal policy and growth.

From a policy perspective, prudent government investment, efficient and effective revenue composition and productive private investment will accelerate economic growth. In addition, the government should eye better financial management and human resource policies, taking into consideration the country’s risk and uncertainty indicators akin to governance issues to enhance growth. Government should spend on human and physical capital. This can further catalyse and strengthen human capital in the country.

Future of Mitsubishi Industry

The vision of Industry 4.0 presents a utopia interlinking all parts of an operation and where efficiencies, cost reductions and productivity increases can be achieved through integrated automation.

Mitsubishi Electric has embraced the smart factory and Industry 4.0 concepts. Now, the group has distilled this guidance into a white paper, ‘Industry 4.0 – The road to digitalisation in future manufacturing’.

Mitsubishi Electric marketing & operations group manager, Chris Evans, said: “When we start to consider Industry 4.0 it can be confusing. On one level we are looking at the convergence of business systems with the physical plant control but is this new? The real impetus behind Industry 4.0 comes not just from the link between the plant and the enterprise but once we have this link, not only can we have the means to improve performance but also to measure performance against an ideal model – the cyber physical system, if you will.”

In-depth analysis and continuous improvement define the spirit of Industry 4.0 – but how do we get there and is UK manufacturing ready to be smart?

“If we built a plant from the ground up on a greenfield site, we could build a smart factory embodying the goals of Industry 4.0, using technologies available today,” Evans commented.

“However the challenge with many manufacturing plants is that their automation systems have evolved over years, resulting in disparate automation platforms, poor network infrastructure, no data management strategy and little knowledge of how to get relevant information out.

“You have to define exactly what the manufacturer is trying to achieve, its drivers and problems. Look at existing automation and what network infrastructure is in place, if any. Accept it will take time and investment. Look for quick wins that demonstrate returns against a moderate budget.”

Mitsubishi Electric has undertaken smart factory implementations at its own facilities. At its Kani Works switchgear production facility, a smart factory upgrade increased productivity and an operating rate plus a reduction in the number of stages in the manufacturing process.

In its white paper Mitsubishi Electric defines the basis of Industry 4.0 and the overlapping principles of interoperability, information, integration, automation and autonomy. It defines the key features of Industry 4.0, looking at the importance of communications, cyber physical systems and cyber security.

“Most plants in the UK haven’t had the luxury of being designed from scratch to meet the goals of Industry 4.0 but that doesn’t mean it can’t be done,” concluded Evans.

“With strategic planning and a structured approach, any plant can reap the benefits of optimised, sustainable, safe production that is energy efficient, all within a fully connected supply chain. The road to digitalisation begins with the first step.”

Manufacturing Industry key to economic growth

The economic performance of a country is usually measured through changes in its gross domestic product (GDP), a measure of what the country produces. Bangladesh Bureau of Statistics (BBS) has just announced its preliminary national accounts estimates for FY 2017-18. The main purpose of such an early announcement is to provide information to the policymakers with respect to the budget and determination of fiscal policy. These preliminary results reported that the GDP would grow 7.65 per cent this financial year. [This estimate is in constant prices so the effect of rising prices is removed. Using current prices the economy grew at 13.3 per cent.] The implication is that the economy is growing strongly and now has grown at a rate above 7.0 per cent for three years.

One should note that the preparation of the accounts includes data available by March 2018, much of the first half of the financial year. In preparing the early estimate, BBS projects economic change over the course of the year’s second half. There is strong momentum in most of the sectors, so sharp changes in output growth are rare. In recent years, there has always been a lot of criticism of the national accounts and claims from many of Bangladesh’s leading economists who suggest the accounts are exaggerated and that economic growth has not gone above 7.0 per cent. These criticisms are discussed here.

COMPARISONS: One point often made is that the World Bank (WB) and Asian Development Bank (ADB) have made projections with lower growth rates. ADB and WB do not have all the data available to BBS; these forecast like all macro-economic forecasts are essentially projecting trends of past data with perhaps some attempts to take account of interrelationships. In the past three years, these forecasts have all been wrong. The trouble is that the only test of whether you are right is to compare with what BBS reports.

AGRICULTURE: We note that agriculture is only 14 per cent of GDP, so its performance has little impact on the overall growth rate of the economy. One criticism is that the agriculture sector grew at 3.0 per cent despite the problems with floods, storms and crop diseases. However, crop production grew at slightly less than 1.0 per cent; this is about the same as the previous two years. Paddy production will show zero increase for the year with a reasonable boro crop, responding to high rice prices. For crop production to grow at 1.0 per cent when paddy production does not increase, would require all other crops to grow at 2.5 per cent. With the diversification of crop production and past production, this is a reasonable figure. Agriculture grew largely from increase in fish and livestock productions.

MANUFACTURING: The increase in manufacturing is the key to the question of the validity of growth rate. The manufacturing sector is estimated to increase by 13 per cent and this increased rate is doubted by many observers. The index of large and medium manufacturing has been growing at 11 per cent per annum over the past four years; output of large and medium industries for the first four months of the financial year increased more than 20 per cent over the previous year. The import of capital goods that are linked to 60 per cent of manufacturing have been increasing. Capital goods for manufacturing increased at about 19 per cent per annum from 2012-13 to 2015-16 while the year 2016-17 saw 24 per cent increase over the previous year. Thus there has been a strong growth of capital goods for manufacturing. Availability of electricity for the manufacturing sector has improved considerably over the past two years with special, highly reliable power lines to key industrial areas. These data support an increased growth rate over the past years.

An important criticism is the inconsistency between the growth of employment in manufacturing and the increase in output. A few points in this regard are: the garment sector is moving rapidly towards greater capital intensity and employment per garment is falling. The sector can increase production through overtime by at least 10 per cent without any increase in the number of workers and capital equipment. At the same time, the substantial investments taking place in the knitting industry is undergoing automation – thereby sharply reducing labour requirements. Textiles and pharmaceuticals are two sectors with substantial importance for manufacturing that are capital-intensive. The productivity increases in the garment sector are quite rapid. Finally, most of the manufacturing is produced by the large and medium-sized factories. These provide the formal jobs in manufacturing. This seems to cover less than 20 per cent of total employment in industry. Hence, changes in the total manufacturing labour force are not accurate measures of changes in output.

The future of transport infrastructure in Bangladesh

The ongoing infrastructure projects will definitely improve our transportation system. We need to assess this development from a historical perspective. At the time of Partition, the transport infrastructure in East Pakistan was very poor. There were only a few hundred kilometres of pucca roads. Due to our unique geographical setting, one has to cross rivers to travel from one place to another. At that time, as there were very few bridges people had to cross rivers through water transports such as ferry and boats. Basically, riverways and railways were the major modes of communication.

We notice some development after 1947. Some bridges were built but those contributed little to the overall improvement of our road network.

In our case, a major barrier to the development of surface transportation network, e.g. road and railways, is the high construction cost. Since this is a flood-prone low-lying country, the roads and railways need to be built on embankments which incurs huge extra costs. Moreover, earthquakes need to be considered during designing of these surface structures.

In hindsight, I strongly feel that we should have emphasised more on the development of waterways and railways. However, the current government has taken some initiatives to revive the water and rail transportation networks.

To cut the long story short, the opening of Bangabandhu Bridge over Jamuna in 1998 was a milestone in the development of our transportation network. It enabled speedy movement of vehicles across the river. Although there was initial reservation from the co-financiers, particularly the World Bank, we added rail tracks to the bridge. Due to the late incorporation, there remain some weaknesses and concerns about the durability of the bridge with the rail line. Load and speed restrictions have been impasses. Recently, a decision has been taken on the construction of a separate railway bridge across Jamuna River. It will be a major improvement for the railway sector.

Due to the overall weaknesses of our transportation infrastructure, we have not been able to achieve our development goals. Foreign investors also shy away from investing here. The good news is that the situation is improving. For example, the inauguration of two bridges—Second Meghna Bridge and the Second Gumti Bridge on the Dhaka-Chattogram route—has significantly reduced the travel time between Dhaka and Chattogram.

We are heavily dependent on our sea ports for both export and import. The capacity of the Chattogram port has increased lately, but it is still insufficient. The second sea port is the port of Mongla. We have already started the construction of the Payra Deep Sea Port, though there are some problems associated with the project. The channels of this port need to be dredged continuously. Once these projects are successfully completed our international communication will be hugely boosted.

Another important international connectivity network is the Asian Highway. Although our government has decided to get connected with this network, it has not been started yet. Earlier the government was a bit unsure about the route connecting Bangladesh to India. The route plan was revised later and it shifted towards Meghalaya through Shillong. The initial route map was designed mostly on flat terrain that was supposed to go through Karimganj in Assam, onwards to Monipur and then to Myanmar. There is another route plan for creating links between the south-east part of Bangladesh and Myanmar. Since the route is planned to pass through Rakhaine state (an area where Rohingya people live), Myanmar government is not interested to cooperate with the project. Therefore, currently it is feasible for us to establish road links in the north-eastern side for the Asian Highway. The biggest contribution to the Asian highway will be the inauguration of the Padma Bridge. It will directly open a road to Kolkata from the south-western part. Another road link can also be established between Bangladesh and Nepal on the north-western side.

Importance of solar energy system

All life on earth is supported by the sun.  This amazing resource radiates energy and provides us both heat and light by fusing hydrogen into helium at its core.  We call this solar radiation. Only about half of this solar radiation makes it to the Earth’s surface. The rest is either absorbed or reflected by clouds and the atmosphere. Still, we receive enough power from the sun to meet the power demands of all mankind — millions of times over.  Solar energy—power from the sun—is a vast, inexhaustible, and clean resource.

Sunlight, or solar energy, can be used directly for heating and lighting homes and businesses, for generating electricity, and for hot water heating, solar cooling, and a variety of other commercial and industrial uses.  Most critical, given the growing concern over climate change, is the fact that solar electricity generation represents a clean alternative to electricity from fossil fuels, with no air and water pollution, no global warming pollution, no risks of electricity price spikes, and no threats to our public health.

The solar resource is enormous.  According to the US Department of Energy, the amount of sunlight that strikes the earth’s surface in an hour and a half is enough to handle the entire world’s energy consumption for a full year.  Just 18 days of sunshine on Earth contains the same amount of energy as is stored in all of the planet’s reserves of coal, oil, and natural gas.

And, once a system is in place to harness the solar resource and convert it into useful energy, the fuel is free.

Since 2008, U.S. installations have grown seventeen-fold from 1.2 gigawatts (GW) to an estimated 30 GW today, enough to power the equivalent of 5.7 million average American homes. Since 2010, the average cost of solar PV panels has dropped more than 60% and the cost of a solar electric system has dropped by about 50%. Solar electricity is now considered to be economically competitive with conventional energy sources in several states, including California, Hawaii, Texas, and Minnesota.

Importance of Aerospace in our country

As a new administration takes office and the 115th Congress gets underway, AIAA’s public policy efforts are ramping up as well. The Institute is using this transition period as an opportunity to focus on educating both new and veteran lawmakers, their staffs, and other federal officials about the importance and impact of the aerospace community to the nation.

As in years past, our Key Issues (KI) provide the supporting pillars of the AIAA Congressional Visits Day (CVD), drive panel sessions at our annual forums, underpin our state-level advocacy efforts, and form the basis of a number of smaller focused events and activities. You can find the 2017 AIAA key issues at https://www.aiaa.org/KeyIssues.

A paramount issue that we must tackle is the ongoing struggle to achieve budget stability and predictability. We call on Congress to return to regular order and to end the mandatory across-the-board funding cuts, known as sequestration. At the same time, it is imperative for Congress to address the continuous decline in federal funding for research and development, which has caused the United States to fall behind its global competitors. Moreover, both NASA and the FAA are in need of long-term authorizations and appropriations in order to meet short- and long-term program and mission requirements. NASA has not been reauthorized since 2010, and the FAA is currently operating under a short-term extension that expires at the end of this fiscal year.

A robust and technologically proficient aerospace and defense (A&D) sector also requires policies that enhance our workforce. This includes improving the pipeline of STEM-educated workers into the U.S. economy and retaining highly-skilled foreign-born STEM graduates who receive degrees at U.S. universities.

In late January, AIAA teamed with the Aerospace Industries Association and the Space Foundation to organize two “Aerospace 101” educational briefings for congressional staff. Aerospace industry experts presented a broad overview of the sector’s myriad contributions to our national defense, security, economy, and quality of life. No specific programs or priorities were promoted. The briefings were hosted by Senator Martin Heinrich (D-NM), Congressman Derek Kilmer (D-WA), and Congressman Steve Knight (R-CA).

From a grassroots perspective, our annual CVD program brings together scores of AIAA members of all levels and backgrounds from all over the country for a day of advocacy on Capitol Hill. CVD offers professional and student members an experience that opens their eyes to the inner workings of the legislative process, enhances their career development, and presents the opportunity to be a champion for the aerospace community. This year’s CVD will take place on Wednesday, 29 March. There is still time to register, and we look forward to our members’ continued involvement in this unique and important program.

Even with a strong presence and a day of substantive member outreach during CVD it is still imperative for all AIAA members to be everyday advocates for aerospace. And you do not have to come to Washington, DC, to be an advocate. To help strengthen our grassroots efforts around the country we intend to revive the “August is for Aerospace” program this year. The best chance to meet directly with your member of Congress is while they are at home during a congressional recess. This is also an opportune time for AIAA Sections to engage elected officials in your outreach activities. You could invite them to participate in a panel to discuss a particular issue of relevance to the local aerospace community, ask them to come speak to your local chapter about one of our key issue areas, or have them attend an AIAA-sanctioned event. Additionally, you could invite the official to visit and tour your company/organization’s facility. There are many ways to get your representatives engaged.

We are off to a great start, but the Institute needs your help to address the profession’s public policy needs. Participation is power. Your involvement at the federal, state, and local levels drives our success and ensures that AIAA continues to lead the way on issue advocacy impacting OUR aerospace community.