Human Capital, Infrastucture, and Economic Growth in Asia PDF

University Sebelas Maret Surakarta
March 2, 2017
Human capital, infrastructures, and

economic growth in Asia
Bruno S. Sergi
Davis Center for Russian and Eurasian Studies, Harvard University
&
University of Messina
Education and infrastructure are the
pillars to sustainable growth!
Lecture Topics:
Total factor productivity
Education to Economic Development
Infrastructure
Human Capital to Economic Development

China at Lewis Turning Point
Labor Dividend in India
Aging Eastern Europe and growing central Asia.
Human Capital and Productivity
Human Capital
Working with Existing Developing

Technology Better New Technology
Acquiring Processing
New Information
Knowledge
Some revealing graphs!
Comparison of Overall Productivity Levels, Selected Countries, 1999 and 2015
CHART 4: Comparison of Overall Productivity Levels, Selected Countries, 1999 and 2015
140
Labor productivity level Relative to US, 1999
Norway
120
Italy
Switzerland
100 U.S.A
Germany France
Sweden
80 U.K Spain
60 Japan
Mexico Turkey
40
Russia
Brazil
20
India Indonesia
China
0
0 20 40 60 80 100 120
Labor productivity level relative to US, 2014
Source: The Conference Board Total Economy Database (Adjusted version), November 2016.
Notes: Labor productivity is measured here as output per worker; The size of the bubble represents per capita income in 2014.
Investment in education that leads to the formation of human
capital is recognized as an engine of economic growth.
In every East Asian

economy, all levels
of education carry
positive and high
rates of return to
the individual as
well as to society.
Both private and
social rates of
return to
education in East
Asia are fairly high
on their own, and
also in comparison
with other regions
of the world.
Infrastructure and Economic
Development The positive correlation
between estimated
infrastructure
investments (per capita)
and the level of
development (by GDP per
capita) of 104 countries.
This graph indicates that
infrastructure
investments can
accelerate growth,while
growth causes greater
demand for (and usually
supply of) infrastructure.
The figure shows that
infrastructure
investments continue to
grow with the level of
income, beyond just
Source: Transformation through infrastructure, World Bank
meeting access needs.
How is productivity measured?
Productivity provides a simple but powerful indicator of the ability of a

country, sector or company to optimally use its resources to drive growth.
Labor productivity measures output per employed worker or, if working hours
can be measured (mostly only in mature economies), output per hour worked.
At country level, output is typically measured as the economys GDP (at sector
level called value added) adjusted for inflation.
A more sophisticated productivity measure, total factor productivity (TFP),

represents output from all inputs in the production process, not just labor. TFP
is the result of a combination of improvements in efficiency (fewer inputs are
needed for a given output) as well as technology and innovation (more output
is achieved from a given input).
https://www.conference-board.org/retrievefile.cfm?filename=The-Conference-Board-2015-Productivity-Brief.pdf&type=subsite
https://www.conference-board.org/retrievefile.cfm?filename=The-Conference-Board-2015-Productivity-Brief.pdf&type=subsite
Human Capital to Productivity
Improvement
There are 4 factors of production that influence

economic growth within a country:
1. Natural Resources available
2. Investment in Human Capital
3. Investment in Capital Goods
4. Entrepreneurship
Growth of Labor Productivity, Persons Employed and Real GDP for Major Emerging
Economies, 1999-2016
TABLE 4: Growth of Labor Productivity, Persons Employed and Real GDP for Major Emerging Economies, 1999-2016
Major
Russian China China South
Emerging Brazil India Mexico Indonesia Turkey
Federation (Alternative) (Official) Africa
Economies*
Labor Productivity Growth (GDP per person, annual average, percent)
1999-2006 4.4 -0.3 4.7 3.2 8.0 9.2 2.1 1.3 3.2 3.6
2007-2013 5.3 2.0 2.2 7.3 8.1 10.1 1.4 -0.3 3.4 0.2
2013 4.2 1.6 1.5 5.1 6.0 7.8 -0.8 0.8 3.8 1.3
2014 3.8 -1.3 0.5 5.3 5.8 7.2 -0.4 1.9 3.3 1.2
2015 2.1 -4.1 -4.8 5.2 3.7 7.0 -2.6 0.1 4.6 1.4
2016 (Projection) 2.5 -4.2 0.1 4.8 3.8 6.7 -1.5 0.4 3.8 -0.7
Growth in Persons Employed (annual average, percent)
1999-2006 1.9 3.2 2.1 3.5 1.0 0.7 1.7 1.8 1.1 0.5
2007-2013 0.7 1.8 0.5 0.2 0.5 0.4 1.1 2.4 2.4 3.2
2013 0.8 1.1 -0.2 1.2 0.4 0.4 3.1 0.6 1.8 2.8
2014 0.9 1.5 0.2 1.7 0.4 0.4 1.9 0.4 1.7 1.6
2015 1.0 0.2 1.1 2.0 0.5 0.3 3.9 2.4 0.2 2.5
2016 (Projection) 0.8 0.4 -1.3 1.9 0.2 0.2 1.6 2.0 1.2 2.7
Real GDP Growth (annual average, percent)
1999-2006 6.4 2.9 6.9 6.8 9.1 10.0 3.9 3.1 4.3 4.1
2007-2013 6.3 3.8 2.7 7.5 8.7 10.5 2.5 2.0 5.9 3.4
2013 5.0 2.7 1.3 6.3 6.4 8.2 2.2 1.4 5.6 4.2
2014 4.7 0.1 0.7 7.0 6.2 7.6 1.5 2.3 5.0 2.9
2015 3.2 -3.9 -3.7 7.3 4.2 7.3 1.3 2.5 4.8 4.0
2016 (Projection) 3.2 -3.8 -1.2 6.8 3.9 6.8 0.1 2.4 5.0 2.0
Notes: The Major Emerging Markets aggregate is based on China (Alternative). For more information, please refer to the notes in the introduction to this
productivity brief; Growth rates are based on the annual percentage of difference of each variable. Regional GDP and labor productivity growth rates are aggregated
using shares in nominal PPP converted GDP; Regional employment growth is weighted using employment shares. Growth rates for 1999-2006 and 2007-2013 are the
averages of yearly growth rates.
Total Factor Productivity Growth by Major Region, 1999-2015
TABLE 11: Total Factor Productivity Growth by Major Region, 1999-2015
1999- 2007-
2013 2014 2015
2006 2013
United States 0.5 -0.2 -0.5 0.1 0.1
Europe 0.4 -0.6 -0.2 -0.1 0.3
of which: Euro Area 0.1 -0.7 -0.2 -0.2 0.2
Japan 0.1 0.1 0.7 -0.8 -0.1
Other Mature 1.0 0.4 0.4 0.1 -0.1
Mature Economies 0.5 -0.3 -0.1 -0.1 0.1
China 2.3 1.3 0.2 0.1 -1.3

India 0.1 0.6 0.9 1.6 1.9
Other Developing Asia 2.1 0.6 1.1 1.1 1.3
Latin America -0.1 -0.1 -0.2 -1.6 -2.5
of which: Brazil 0.1 0.9 0.2 -2.2 -5.0
of which: Mexico -0.5 -1.4 -1.5 -0.1 -0.5
Middle East & North Africa 0.2 -1.9 -2.5 -0.8 -0.9
Sub-Saharan Africa 2.3 1.1 -0.2 0.2 1.2
Russia, Central Asia and Southeast Europe 4.5 1.2 1.0 -0.1 -2.6
Emerging Markets and Developing Economies 1.6 0.4 0.1 0.0 -0.7
World 0.9 0.1 0.0 0.0 -0.3
Addenda:
EU-15 0.1 -0.7 -0.2 -0.2 0.2
EU-13 2.3 -0.1 0.2 0.3 0.9
EU-28 0.4 -0.6 -0.2 -0.1 0.3
OECD 0.3 -0.4 -0.2 -0.2 0.0
Notes: Please refer to the notes at the beginning of this document for a list of countries included in the regional
aggregates; This table is based on estimates for 123 countries (see table 9 for a full list of countries); Total Factor
Productivity Growth (TFP) measures the growth of GDP over the combined contributions of total hours,
workforce skills, machinery and structures and IT capital; Growth rates are calculated as log differences; Growth
rates for 1999-2006 and 2007-2013 are the averages of yearly growth rates; Regional aggregates are weighted
using shares in nominal PPP converted GDP.
Trend growth of Labor productivity (output per person) using HP filter,
Major Regions, 1971-2015
CHART 1: Trend growth of Labor productivity (output per person) using HP filter, Major Regions, 1971-2015
4.5
4.0
Emerging Markets and

3.5
Developing Economies
3.0
2.5 World
2.0
1.5 United States
1.0
Other Mature Economies
0.5
0.0
2005
1970
1975
1980
1985
1990
1995
2000
2010
2015
-0.5
Notes: Trend growth rates are obtained using HP filter, assuming a l=100.
Contribution of Labor Productivity and Employment to GDP growth,
Major Regions, 2000-2016
CHART 2: Contribution of Labor Productivity and Employment to GDP growth, Major Regions, 2000-2016
6
Labor Productivity
5 Employment
4 GDP
3
2
1
0
2016 (Projection)
2016 (Projection)
2016 (Projection)
2014
2015
2014
2015
2014
2015
2000-2013
2000-2013
2000-2013
Mature Economies Emerging Markets and Developing World
Economies
Notes: GDP growth (measured in log differences) is the sum of growth in employment and output per worker.
Growth
CHART 3:of Labor
Growth Productivity
of Labor Productivity andand TFP,Regions,
TFP, Major Major Regions, 1999-2015
1999-2015
Labor productivity growth Total Factor Productivity growth

(output per worker) (output per combined unit of labor
per year, average % and capital) per year, average %
World World 1999-2006

2007-2015
Mature Economies Mature Economies
United States United States
Europe Europe
of which: Euro Area of which: Euro Area
Japan Japan
Other Mature Other Mature
Emerging Markets and Emerging Markets and

Developing Economies Developing Economies
China China
India India
Other Developing Asia Other Developing Asia
Latin America Latin America
of which: Mexico of which: Mexico
of which: Brazil of which: Brazil
Middle East & North Africa Middle East & North Africa
Sub-Saharan Africa Sub-Saharan Africa
Russia, Central Asia and Russia, Central Asia and

Southeast Europe Southeast Europe
-2 0 2 4 6 8 -2 0 2 4
Output (value added) per person employed in US$, corrected for
differences in price levels, Major Regions, 2015
CHART 5: Output (value added) per person employed in US$, corrected for differences in price levels, Major Regions, 201
120,000
100,000
80,000
60,000
40,000
20,000
India
Brazil
Mexico
Euro Area
Japan
China
World
Mature Economies
United States
Developing Economies
Emerging Markets and
Growth of Labor Productivity, World, Actual, Pre-2005 and Post-2005
Trend, 1995-2015
CHART 6: Growth of Labor Productivity, World, Actual, Pre-2005 and Post-2005 Trend, 1995-2015
Pre-2005 trend Post-2005 trend

7.0
6.0
2010
5.0 2000
4.0
2014
1995 2003
3.0 2012
2001
2.0 1998 2015
1.0
0.0
2009
-1.0
Notes: Labor productivity is measured here as output per worker; Growth rates are presented as percent changes.
Education to Productivity
Improvement
Education plays major role in
promoting successful
engagement with the global
economy by six key
processes:
Providing skills which attract

inward investment
Assisting in knowledge and
technology transfer
Upgrading the economy
Reducing inequality
Promoting social cohesion
Strengthening state capacity
International Trends and Convergence in
Health and Education
Enrollment rates have improved worldwide

Teacher-pupil ratios have increased in many
regions
Average years of schooling has increased in all
regions
Infant mortality is down; life expectancy is up in all
regions
Work is critical to human development.
World wide 7.3 billion people, 3.2 billion are in jobs.
Others engage in care work, creative work, voluntary work or other
kinds of work or are preparing themselves as future workers.
Source: UNPD. Human Development Report 2015

Human Capital Report 2016
The Human Capital Report of 2016 aims to combine public international statistics,
qualitative perception data and big data metrics to provide a comprehensive picture
of the situation today as well as the opportunities for
the future.
The Human Capital Index ranks 130 countries on how well they are developing and
deploying their human capital potential.
The Index quantifies how 130 countries are developing and deploying their human
capital, and tracks progress over time. It takes a life- course approach to human
capital, evaluating the levels of education, skills and employment available to people
in five distinct age groups.
http://reports.weforum.org/human-capital-report-2016/
Human Capital Report 2016
The Index assesses Learning and Employment outcomes on a scale from 0

(worst) to 100 (best) across five distinct age groups to capture the full
demographic profile of a country:
014 years the youngest members of the population for whom

education is assessed among the most critical factors
1524 years youth for whom factors such as higher education and
skills use in the workplace are assessed
2554 years the bulk of the labor force, for whom continued learning
and employment quality are assessed
5564 years the most senior members of most workforces for whom
attainment and continued engagement are assessed
65 and over years the oldest members of the population, for whom
both continued opportunity and health are assessed
Table 1: Human Capital Index 2016, detailed rankings
East Asia and the Pacific
http://reports.weforum.org/human-capital-report-2016/
the Human Capital Index results, with an overall average score of 69.75. The gap between the best
and worst performers in the East Asia and the Pacific region is the second largest of any region,
reflecting in part the different stages of economic development of the 15 countries from the region
covered in the Index, but also the varying degrees of human capital outcomes even between
countries with similar income.
Scores for the regions 014 Age Group pillar are much higher relative to other pillars, reflecting the
regions remarkable progress between generations.
The best-performing countries in the region, such as Japan (4), Singapore (13) and the Korea, Rep.
(32) are global strongholds of human capital success, while countries such as Cambodia (100), Lao
PDR (106) and Myanmar (109) trail the region despite a relatively solid performance relative to their
income levels. ASEAN economies such as Malaysia (42) and the Philippines (49) are not too far
behind their northern neighbors, while China (71) scores near the regional and overall Index average
with regard to its human capital performance.
Over half of the countries in the region have achieved near-universal primary school enrolment rates;
yet, on average, over 20% of the regions 014 age group is not enrolled in secondary education.
Among its 2554 age group core working population, the average labor force participation rate is
83%. Singapore (13) has the highest proportion of high-skilled employment, at 55% of its workforce
(2nd in the world), with a regional average of 22%. The region includes five countries that are ranked
in the top 10 for the highest healthy life expectancy.
Eastern Europe and Central Asia
http://reports.weforum.org/human-capital-report-
2016/
The Index covers 22 countries from Eastern Europe and Central Asia. At an overall average
score of 75.02, the region ranks in third place globally, after North America and Western
Europe.
It includes several remarkable success stories with regard to successful human capital
potential maximization, including Estonia (15) and Slovenia (16), which both score above the
80% threshold, and the Czech Republic (25), Ukraine (26), the Russian Federation (28),
Kazakhstan (29) and Poland (30), which all score within the top 30. Ukraines performance is
particularly remarkable relative to its GDP per capita levels.
Most countries in the region are close to having achieved near-universal basic education
enrolment; however, some, such as Macedonia, FYR (59) and Romania (38), still lag behind.
The bottom-ranked countries in the region, Moldova (63) and Albania (70), are also held back
by the persistence of issues such as child labor.
In general, countries in the Eastern Europe and Central Asia region benefit from formally well-
educated older populationsa legacy of the regions former heavily state-led school
systemsbut underperform with regard to labor force participation. Several countries in the
region also have a relatively low healthy life expectancy.
Building Human Capital in East Asia
Human resource led development
Economic development in East Asia is aptly described as human
resource led development (Behrman 1990).
As the Asian Development Bank (ADB 1997) concluded, East Asia
benefited from rapid accumulation of physical capital, an
increasingly sophisticated internal and international division of
labor, rapid demographic transition, and endogenous growth
factors, including institutions, and values and human resource
development rather a high level of human resource development
focusing on scientists and engineers that gave rise to technological
progress.
This is not to suggest that other factors have not been important in
East Asian growth. Education is a necessary, but not necessarily a
sufficient condition for sustained economic growth, for the
reduction of poverty and improvement in income distribution.
http://siteresources.worldbank.org/WBI/Resources/wbi37166.pdf
Building Human Capital in East Asia 16
Figure 2. Growth in Enrollment Ratios in Secondary Education

100
Japan
80
Developed countries Hong Kong
China
Korea Singapore
60
World total
Taiwan
40
Developing countries
20
1960 1965 1970 1975 1980 1985 1990 199496
Source: UNESCO and national sources.
Figure 3. Growth in Enrollment Ratios in Higher Education

Figure 3. Growth in Enrollment Ratios in Higher Education

60
50
Developed countries
40
30
Singapore
Korea Taiwan Hong Kong
20
Japan
World
10
Developing countries
China
0
1960 1965 1970 1975 1980 1985 1990 199496

very close to the regional average of the developed market economies.
Figure 4. Educational Levels of the Labor Force
Note: Latest available estimate.

Source: Psacharopoulos and Arriagada (1992).
27
More recent evidence, if available, may put Korea and Singapore also in this category. These are
Building Human Capital in East Asia
Figure 1. Growth in Human Development Index
Source: UNDP (1998).
The East Asian economic miracle is largely attributed, among other things, to the regions sustaine
levels of investment in human capital over a long period. One can identify an education miracle
behind the economic miracle (Haq and Haq 1998, p. 31). Accordingly, economic development in Ea
differences between private and social rates of return, which are not particularly high, are due to public
Estimated Rates of Return to Education
subsidization of education at all levels, which is also not quite high in the East Asian economies.11
Table 2. (percent) Rates of Return to Education

(percent)
Social Private
Economy Year Primary Secy. HigherBuilding Primary Secy.
Human Capital in East Asia
Higher 7
China 1993 14.4 12.9 11.3 18.0 13.4 15.1
Hong Kong 1976 15.0 12.4 18.5 25.2
Japan 1967
Social Private 10.5
Economy 1973
Year
Primary 4.6
Secy. Higher6.4 5.9 8.1
BuildingPrimary
Human CapitalSecy.in East Asia Higher 7
1976
1973 9.6 8.6
12.2 6.9
8.8 13.4
10.4
8.8
1980
1980
8.1 11.7 8.3
Korea 1967
1982 9.0
10.9
Social 5.0
13.0 Private
EconomyMales 1969
1985
Year Primary 11.0
7.6
Secy. 9.5
14.5
Higher Primary 7.6
Secy. Higher14.8
Females 1973 9.0
12.2 (Table continues
11.0
8.8 on thefollowing
9.5 page.)
11.6
Males 1994
1980 7.3
8.1 7.2
11.7 8.1 6.9
9 Females 1982 6.8
10.9 6.8
13.0
11.6 7.0
The alternative rate of return or the rate of discount is generally estimated to be about 810 percent.
10 Singapore
Owing toMales 1966
universal primary1985 marginal 17.6
6.6
education, generally 7.6 to primary
returns 24.1
14.5 be estimated
education couldnot 20.0
7.6 25.4(in table 2).
14.8
in many countries
of rates of return countries such
11
See also
Taiwan World Bank (1997)
Females 1970for a description 9.0 to education
26.5 15.0
11.0 in a few selected 17.6
9.5 as Korea, Taiwan,
18.4 China and
11.6
Hong Kong. (See also Gannicott 1990.)
Males 1972
1994
27.0 12.3
7.3 17.7
7.2
50.0 12.7
8.1 15.8
6.9
Females 6.8 6.8 11.6 7.0
World
Singapore 1966 18.4
6.6 13.1
17.6 10.9
24.1
29.1 18.1
20.0 20.3
25.4
Taiwan
OECD 1970
14.4 26.5
10.2 15.0
8.7
21.7 17.6
12.4 18.4
12.3
a
Asia 1972 27.0
19.9 12.3
13.3 17.7
11.7 50.0
39.0 12.7
18.9 15.8
19.9
. Not available (or not estimated).

World 18.4
13.1 10.9 29.1 18.1 20.3
OECD
a. Non-OECD.
a. Non-OECD. 14.4 10.2 8.7 21.7 12.4 12.3
a
Sources:Asia
China: Hossain
Sources: (1997);Hossain
China: Korea 19.9 Korea 13.3
(1997); (1985 and 11.71994): KEDI 39.0 18.9Lee in 19.9
(1985) and this volume;
(1985 and 1994): KEDI (1985) and Lee in this volume; Others: Psacharopoulos (1985, 1994), supplemented by Tan and Mingat (1992, p. 191).
Others: Psacharopoulos (1985, 1994), supplemented by Tan and Mingat (1992, p. 191).
What is PISA?
OECD launched the triennial survey of 15-year-old students around the world known as the
Program for International Students Assessment, or PISA.
PISA assesses the extent to which 15-year-old students, near the end of their compulsory
education, have acquired key knowledge and skills that are essential for full participation in
modern societies. The assessment focuses on the core school subjects of science, reading and
mathematics.
B-S-J-G (China): Beijing, Shanghai, Jiang Su Province and Guang Dong Province
Continue: PISA Ranking
Some 8% of students across OECD countries (and 24% of students in Singapore) are top performers in science.
Students at these levels are sufficiently skilled in and knowledgeable about science to creatively and autonomously
apply their knowledge and skills to a wide variety of situations, including unfamiliar ones.
More than one in four students in Beijing-Shanghai-Jiangsu- Guangdong (China), Hong Kong (China), Singapore
and Chinese Taipei are top-performing students in mathematics, meaning that they can handle tasks that require
the ability to formulate complex situations mathematically, using symbolic representations.
Two distinctive features of educational
development in the East Asian countries:
Government planning has remained absolutely central to

development, with medium-term planning being a common strategy
of development in Korea, Taiwan, and Singapore. Educational plans,
including manpower (or human resources) plans are derived from
economic plans on a regular basis. Human resource planning aims to
reduce the mismatches between the output of the education system
and the demands of the labor market. This is in contrast to other
developing and developed economies that have virtually bid goodbye
to planning, including educational and manpower planning.
Confucian values: meritocracy, striving for learning, respect for
knowledge, paternal benevolence, avoidance of conflicts, dutifulness,
respect for one elders, lack of complacency.
All of these traits have been found to have a strong influence on
economic growth, as they permeate the work ethic.
Limited Public Investment
An intriguing aspect is that all East Asian nations had not necessarily
started their phase of rapid development with heavy investments in
education in relation to their respective national income. For example, in
1960 Hong Kong invested only 2.1% of its GNP in education, and Taiwan
2.4%, while a developing country such as India invested 2.3% in fiscal 1959
and 1960. While Korea invested 4.8% in 1960, this share came down
significantly in the immediately following years, to as low as 1.8% in 1965.
China continues to invest relatively a small proportion (less than 3%),
Singapore and Japan are exceptions.
Observed in both the initial and recent years, public expenditures on

education as a proportion of GNP was not much higher in East Asia than
elsewhere. But probably because of (a) historical investments and (b)
relatively steady investments in the postwar period, some of these
economies were even able to afford in the very recent years to reduce
their spending on education, particularly as a proportion of GNP, as GNP
itself has been increasing rapidly in East Asia.
Public Spending on Education
on similar trends, the World Bank (1993, p. 198) observed that in both the initial and recent years,
public expenditures on education as a proportion of GNP was not much higher in East Asia than
elsewhere. But probably because of (a) historical investments and (b) relatively steady investments in
Public Spending on Education

the postwar period, some of these economies were even able to afford in the very recent years to reduce
their spending on education, particularly as a proportion of GNP, as GNP itself has been increasing
rapidly in East Asia.
Figure 5. Growth in Allocation of Resources to Education in East Asia

(percent of GNP)
Source: UNESCO and other sources.
Role of Private Sector
According to MasterCards survey on the Consumer Purchasing Priorities of the card
holders in 2013
Just over two thirds of Asia/Pacific consumers save regularly for their childrens
education and on average, this takes up 14% of their monthly household income.
The highest market is Myanmar at 18%; the lowest is New Zealand with 8%.
More than two thirds of households in Asia/Pacific spend on enrichment classes:
the majority of children in China and South Korea are enrolled in learning a foreign
language, while markets such as Australia, New Zealand and the Philippines place
more emphasis on sports.
More than half of parents in India (54%), Taiwan (52%) and Thailand (52%) are
spending on extra tuition classes for their children, closely followed by Malaysia
(46%), Singapore (45%) and Bangladesh (45%). Chinese (53%) and Korean (50%)
households were more inclined towards foreign language classes. More than 50%
of respondents from Hong Kong preferred their children to learn a musical
instrument.
Overall, a third of Asia/Pacific consumers intend to take up an educational course
in the next year highest in China (53%), South Korea (50%), Malaysia (44%),
Thailand (43%), Hong Kong (41%), and Singapore (38%), and lowest in India (8%),
Indonesia (12%), Japan (14%) and Vietnam (16%).
http://newsroom.mastercard.com/press-releases/two-thirds-of-asiapacific-parents-spending-on-extra-tuition-for-kids-mastercard-survey/
Role of Infrastructure to Economic
Development
Infrastructure as Basic Social
Capital
Infrastructure is the basic services or social capital of a country,
or apart of it, which make economics and social activities
possible by providing transportation, public health and education
services and buildings for community activities. Railways,
airports, hospitals, schools, roads, sewerage systems and
reservoirs constitute the major types of social capital.
Source: Donald Rutherford. Routledge Dictionary of Economics. Second Edition. London and New York. 2002
Hard and Soft Infrastructure to
Economic Development
In general, infrastructure can be categorized into hard infrastructure and
soft infrastructure.
Hard infrastructure refers to physical structures or facilities that

support the society and economy, such as transport (ports, roads and
railways); energy (electricity generation, electrical grids, gas and oil
pipelines); telecommunications (telephone and internet); and, basic
utilities (water supply, hospitals and health clinics, schools, irrigation,
etc.).
Soft infrastructure refers to non-tangibles supporting the development

and operation of hard infrastructure, such as policy, regulatory, and
institutional frameworks; governance mechanisms; systems and
procedures; social networks; and transparency and accountability of
financing and procurement systems
Source: Bhattacharyay, B. N. 2009. Infrastructure Development for ASEAN Economic Integration. ADBI Working Paper 138. Tokyo:
Asian Development Bank Institute.
Fostering cultural and
Soft infrastructure is a community identity.
collection of institutional
frameworks that support
sustained economic and
social progress.
Basic Infrastructure is
the physical systems of
a nation; These
systems tend to be
high-cost investments;
but they are vital to a
country's economic
development and
prosperity.
The Characteristic described as Hard
Infrastructure
1. Longevity, many in large scale, and higher investment costs.
2. Essentially public goods, providing in principle, non-exclusive goods
accessible to all.
3. Fixed investments, bulky and lump-sum with long (or no) payback
periods.
4. Having considerable variation in earning power capacity (e.g.
telecommunications versus water).
5. In most case, public sector playing a dominant role of financing and
regulating in this area.
Lets focus on Fundamental Hard
Infrastructure
Hard infrastructure can contribute to sustainable growth, as
follows:
1. Reducing transaction costs and facilitating trade flows within
and across borders.
2. Enabling economic actors individuals, firms, governments
to respond to new types of demand in different places.
3. Lowering the costs of inputs for entrepreneurs, or making
existing businesses more profitable.
4. Creating employment, including in public works, both as
social protection and as a counter-cyclical policy in times of
recession.
5. Enhancing human capital, for example by improving access to
schools and health centers.
6. Improving environmental conditions, which link to improved
livelihoods, better health and reduced vulnerability of the
poor.
Historical Return on Investment from
Infrastructure Project
Research on Impact of Infrastructure
ln(GDP)=2.14+1.25ln(Education)
R^2=0.33
Figure 1.
12
Scatter Plots: The
4
ln(GDP)=0.51+1.01ln(Electricity
I mpact of Education and I nfrastructure

R^2=0.94
)
on Growth in East Asia 10 0 1 2 3 4 5 6

ln(GDP)=2.14+1.25ln(Education) ln(GDP)=0.51+1.01ln
R^2=0.33 ln(EDUCATION) R^2=0.94
12 8 12
ln(GDP)=12.38+0.75ln(Roads )
r plotsbetween
plots betweenperper capita
capita growth
growth andand
thethe various
various
P
)
R^2=0.38
D
10 10
(G
The scatter plots between per capita growth and the various infrastructure sub-sectors 6
ln
10
8 8
om
romthe
theestimation ofof
asestimation a linear trend
a linear
well as education in in
trend
from the East Asia
East Asia of a linear trend in East Asia over the period
estimation
4
P
)
)
D
D
8
(G
(G
6 6
ln
ln
2
P
)
1985-2004.
D
6
(G
4 4
ln
0 4
0
The database allowed us to cover 16 countries in East Asia: Australia, Cambodia, China, Fiji,
1 2
ln(EDUCATION)
3 4 5 6
2
0 2 4
ln(ELECTRICITY)
6
2
8
2
10
0 0
Indonesia, South Korea, Laos, Malaysia, Mongolia, Papua New Guinea, Philippines, Singapore,0 1 2 3 4 5 6
0
0 2 4 6
ducation and
Education I nfrastructure
and onon
I nfrastructure Growth
Growth ln(EDUCATION) -10 -8 -6 -4 ln(ELECTRIC
-2 0
Thailand, Tonga, Vanuatu, and Vietnam.

ln(GDP)=12.38+0.75ln(Roads )
R^2=0.38
ln(GDP)=-0.49+1.88ln(Sanitation)
R^2=0.56 ln(ROADS)
ln(GDP)=12.38+0.75ln(Roads ) ln(GDP)=-0.49+1.88ln
ln(GDP)=0.51+1.01ln(Electricity)
ln(GDP)=0.51+1.01ln(Electricity) R^2=0.38 ln(GDP)=4.48+0.70ln(Telecoms )
R^2=0.56
R^2=0.94 10 R^2=0.75
R^2=0.94
1212
10 10
10
8
10
10 8 8 8
DP
)
8 6
(G
P
P
)
)
P
)
8 6
D
D
D
6 6
P
)
(G
ln
(G
(G
P)
D
D
(G
ln
ln
ln
6 4 4
(G
6
ln
4 4
ln
4 2
4 2
2 2
0
2
2
0 0 -1 0 1 0 2 3 4 5 6 7
10 0 -8 -6 -4 -2 0 -10 -8 0 -6 1 -4 2 -2 30 4 5 0 1
ln(TELECOMS) 2 3
0
0 2 4 6 8 10
0 ln(ROADS)
2 4 6 8 10 ln(ROADS)
ln(SANITATION ) ln(SANITATIO
ln(ELECTRICITY)
ln(ELECTRICITY)
ln(GDP)=4.48+0.70ln(Telecom s ) ln(GDP)=-3.27+2.44
ln(GDP)=4.48+0.70ln(Telecoms )
ln(GDP)=-0.49+1.88ln(Sanitation) ln(GDP)=-3.27+2.44ln(Water)
R^2=0.75
ln(GDP)=-0.49+1.88ln(Sanitation)
R^2=0.56
R^2=0.56
R^2=0.75
The simplistic univariate linear regression e
R^2=0.36
10
R^2=0.36
10 10
10
10
8
8
links between growth and infrastructure, and 8
8
8 6
P
P
)
)
6
sector on GDP per capita is clearly positive (r
D
D
P
(G
(G
)
6
D
6
)
P)
(G
ln
ln
D
D
6 4 4
(G
(G
ln
ln
ln
4
4 2 4
2
2 0
2 2 Missing data. Several variables in our data 0
0 -1 0 1 2 3 4 5 6 7 0 1 2 3
0
0 1 2 3 4 5 ln(TELECOMS) ln (WATER
-1 0
0
1 2
1 ln(SANITATION
3
2
4 5
3)
6
ln(SANITATION )
4
7
5
0
0 1 2
problems.
3
Compounding
4 5
the missing data pro
ln(TELECOMS) ln (WATER)
Source:How Relevant Is Infrastructure to Growth in East Asia? World Bank, 2008
ln(GDP)=-3.27+2.44ln(Water)
R^2=0.36
ln(GDP)=-3.27+2.44ln(Water) a smaller number of countries than other regi
Supply Chain Management and
Infrastructure Building in China
Supply chains play a big role in a countrys growth
In todays world, products may routinely be assembled from components transported

from across the world, therefore, the infrastructure requirements must be
synchronized to feed the supply chain development. Integration into this supply chain
is joining quality and quantity of production as a determinant of a countrys growth
opportunities.
The benefit of Industrial cluster
Geographically proximate group of companies
and associated institutions in a particular field
Was introduced Linked by Cluster Benefit:

and popularized commonalities and Increasing
by Michael Porter CLUSTER complementarities Productivity
Michael Porter:as a business cluster, competitive cluster,

Also known
Industrial cluster is geographically proximate 1. The cost of transporting goods is
or Porterian cluster
group of companies and associated institutions reduced when suppliers are closely
in a particular field. Linked by commonalities located to each other.
2. Economies of scale in large clusters,
and complementarities
benefit from timely delivery and
1. A cluster of businesses operating together lower inventory costs.
within the same sector 3. A pool of workers emerges, making it
2. Geographically proximate group of easier to hire new workers.
companies 4. Knowledge spillovers, in particular
informal exchanges of ideas, are more
3. Typically a supply chain cluster
likely when firms are in close
4. Interconnections between businesses geographic proximity.
sharing resources
From processing trade-oriented
manufacturing clusters into a high-
technology-oriented exporting region
Pearl river delta regions transformation from a
processing trade manufacturer to hi-tech innovative center
Guangdong has formulated Intelligent Manufacturing

Development Plan: 2015-2025 to develop more innovate
and advanced industries
Source: HSBC
Infrastructure investment is the driving
factor for industrial cluster formation
Pearl River Delta

Economic integration is continuing between Pearl River Delta and
Hong Kong
Close Economic Connectivity between PRD and HK Infrastructure investment in PRD expected to reduce travel time4
Ports Intercity railway completed/ in operation

Amount of Hong Kong capital utilised
Intercity railway/ bridge under construction
$218bn in Guangdong from 1979-2014,
Intercity railway under planning/ consideration
equivalent to 62% of Guangdongs
1979 - 2014 total FDI over the same period1 Heyuan
Qingyuan
Hong Kongs share of total exports

35% from Guangdong in 20141
Guangzhou
Dongguan Huizhou
170% RMB854bn CNH deposit balance
in Hong Kong, #1 globally2 Zhaoqing Foshan
Yunfu Shanwei
2010 2015
Shenzhen
Shenzhen
Mainland demand for office space in Jiangmen
100%+
Hong Kongs Central district has more Zhongshan
Hong Kong
than doubled in the past six years3 Zhuhai
2010 2015
Macao
Hengqin
Policies such as Shenzhen-Hong Kong Stock
Connect and mutual funds recognition schemes are
expected to encourage further economic integration
Chinas National Plan on New
Urbanization (2014-2020)
Build for Growth
Global Demand for Infrastructure Investment
Infrastructure Demand in East Asia
PWC estimated that between
2010 and 2020, Asia will need
to spend approximately US$8
trillion in order to maintain
current levels of economic
growth.
http://www.pwc.com/sg/en/ca
pital-projects-
infrastructure/assets/cpi-
develop-infrastructure-in-ap-
201405.pdf
India to build for growth
India: build for growth According to Indias
2011 Census, the
countrys portion of
urban dwellers rose
from 27.8% of the
population in 2001 to
31.2% in 2011 and
it will surge again to
40% by 2030. This
breakneck
urbanization will
create tremendous
demand for
investment in
infrastructure such as
public transport,
sewerage, electricity
and low-cost
housing.
India already has some of the most
densely populated cities in the world
Urban
infrastructure in
Indian cities is
lagging behind
the pace of
urbanization in
terms of power
and water
supply, waste
treatment, etc.
Inadequate infrastructure
Global Competitiveness Report for 2016, Indias infrastructure
ranked 81th out of 140 countries. 32nd for its transportation
infrastructure and 115th for electricity and telephone.
Investment in infrastructure is not only critical for Indias battle

against poverty but also to lay the foundations for stronger
economic growth for now and in the future.
Inadequate infrastructure:
significant constraint on India's growth potential

retards GDP growth rate by 1-2 % p.a. (estimates)
acts as a major barrier to Foreign Direct Investment
hinders the objective of Inclusive development
The growth of population has put urban
infrastructure and services under severe strain
An Overview of the Condition of the Basic Infrastructure:
Roads:
India has one of the largest road networks in the world, aggregating to 5.4 million
km. Majority of that (estimated 60%)is single lane rural roads. Highway projects:
Golden Quadrilateral (GQ), North-South and East-West Corridors.
Ports and Airports
Indias coastline of 7,517 km. and has 187 non-major ports, rail and road
connectivity to the ports are inadequate. India has 18 international airports 114
domestic airports, 20%annual growth in airport traffic. Many airports have
inadequate runways, landing capacity to meet demand.
Railways
India has one of the largest railway networks in the world (63,000 route KMs
network). The high-density network connecting the major metropolitan cities.
Old technology, Saturated capacity , Slow speeds (freight: 22kmph;
passengers: 50kmph)
Power
Widespread shortages of power in almost all parts of the country. Inadequate
and aging power lines and transmission links.
Peculiar
Indias usage structure
Transport Infrastructure
Inadequate transportation infrastructure limits economic
activities
Grossly overstretched
Goods Transportation by Rail Goods Transportation by Road
1.Sharing of railway line for both passenger
60% Congestion and shortage of capacity
and goods 60% in all transport sectors
57%
48% 47%
Low speed of transportation at50%higher cost
50% 2.Frequent changes in rail freight
40% 3. Lack36%
of rail connectivity to ports 40% 37%
HighPeculiar
4.30% maintenanceusage structure
cost, most equipment
is obsolete and needs immediate 30%
22%
20% replacements. 20%
10% 10%
0% Goods Transportation by Rail 0% Goods Transportation by Road
India USA China India USA China
60% th
Source: 12 Five Yea Plan 60% 57%
48% 47% 1. Carries about 57 % of all freight and 80 %
50% 50%
40% 36% of passenger traffic
37%
2. 40%
National Highways account for only about
30%
1.7 % of the Road Network but22%
30% carry about
20% 40 % of traffic
20%
10% 3. Only 23% of their total length is wider than
10%
0%
two lanes, avg. speed of 30-40 km/h
0%
India USA China India USA China
Source: 12th Five Yea Plan 8
fter coal, iron ore is the second largest commodity for rail
ransportation (13% of total) Shipped by Rail in
Commodities
24 Mt of iron ore was moved in 2013-14
India (MT)
Commodities Carried by Indian Railway (Mt)
1200
Other Commodities
1000
Limestone & Dolomite
800 Iron & Steel
Fertilisers
600
Foodgrains
400 Mineral Oils
200 Cement
Iron Ores
0
Coal 9
2010-11 2011-12 2012-13 2013-14 Source: Railway Statistics
Indian Ports are the gateways to India's
international trade by sea and are handling over
90% of foreign trade.
Most major ports have
very high dwell time and
are running at more
than 90% capacity
Low level of automated
loading process
Age old infrastructure
causing frequent
breakdowns
Poor rail connectivity in
some ports like Belikeri,
Karwar, Krishnapatnam
The percentage of Industry input
requires cargo shipment from oversea.
1 Includes Food, Fertilizer, Chemicals, Cement & Other Dry Bulk Cargo Types
Source: Basic Port Statistics of India, Transport Research Wing,
Government of India, 2013-14
Source: National Institution for Transforming India, 2015

Port Modernization
Activities Undertaken Key Initiatives

Port Capacity Augmentation (FY Target: 30 projects (162.20 Mt
2015-16) additional capacity per year)
Major Ports Operational 104 initiatives identified for

Efficiency Improvement implementation, targeting on 115
MT incremental volume to be
unlocked
Development of New Ports New sites identified: Sagar island
(West Bengal), Vadhavan
(Maharashtra), Colachel
(Tamil Nadu), Tadadi/Belekeri
(Karnataka)

Improving Road
Possible Solutions - Road Dedicated Freight Corrid
Condition in India
Linking Ludhiana in Punjab to Dankun
and linking Mumbai and Delhi in West
Construction of 3,338 kms of dedicated
Vijayawada-Guntur Expressway in India
23
Recognizing the that this
infrastructure gap in the
Infrastructure scenario: India snapshot infrastructure deficit is a

country was holding back economic
growth by 1.5-2 per cent every year
Infrastructure needs severe constraint Mr P.onChidambaram,

Former Minister of Finance
Accelerating economic growth

economic growth, Indias
Requires increasing infrastructure investments
GDP growth rate targets Planning
Required infrastructure Commission
investment in % of GDP has
10.0% projected that

9.0% 9.0% 9.95%
8.5% infrastructure investment
7.2%
6.7% will almost7.55% double to
5%$1,025 billion in the 12th
Five- Year Plan,country which runs
the infrastructure gap in the
Infrastructure scenario: India snapshot was holding back economic

growth by 1.5-2 per cent every year
from 2012 to 2017.Mr P. Chidambaram,
Infrastructure needs Former Minister of Finance
07 - 08 08 - 09 09 - 10 10 - 11 11 - 12 12 - 17 10th Five Year Plan 11th Five Year Plan 12th Five Year Plan
Accelerating economic growth Requires
2002-2007 increasing infrastructure
2007-2010 investments
2012-2017
..and increasing infrastructure
GDP growth rate targets finance needs andRequired
increasing needinvestment
infrastructure for private
in % offinance
GDP
Amount of infrastructure investments in USD billion 10.0% Private finance as % of total finance need
9.0% 9.0% 9.95%
8.5% 36.0%
7.2% 1025 7.55%
6.7% 50% in the
25.0% 12th Five
5%
year plan
514 under
finalization
218
07 - 08 08 - 09 09 - 10 10 - 11 11 - 12 12 - 17 10th Five Year Plan 11th Five Year Plan 12th Five Year Plan
10th Five Year Plan 11th Five Year Plan 12th Five Year Plan 2002-2007 2007-2010 2012-2017
2002-2007 2007-2010
..and increasing infrastructure2012-2017
finance needs 10th and
Five Yearincreasing
Plan 11th Five Year Plan
need 12th Fivefinance
for private Year Plan
2002-2007 2007-2010 2012-2017
Investment in Infrastructure for Indias growth
New roads. The country is constructing
High Profile 20,000 kilometers of new and
upgraded roads over the next five
Projects in India years.
Industrial corridor between Mumbai
and Delhi. The creation of an
ambitious industrial corridor between
Mumbai and Delhi.
In Mumbai, an elevated freight-rail
corridor, a new airport, and a trans-
harbor link are in the works.
Two rapid-transit corridors are being
built to improve travel between
neighboring states and Delhi.
Construction of 120 bridges and the
completion of other road
improvements will help connect rural
areas to Chennai, the capital of the
southern state of Tamil Nadu, where a
subway system is scheduled to open by
2015
Investments worth $250 billion in
electric plants and power grids are
being made throughout the power-
starved country
The new perspective of One Belt One
Road
Launched by the Chinese
government as the Aspects of cooperation:
development strategy in 2013.
The conception refers to the Transportation
New Silk Road Economic Belt, Infrastructure
which will link China with development
Europe through Central and Trade and investment
Western Asia, and the 21st Energy and natural
Century Maritime Silk Road, resources
which will connect China with Financial security
Southeast Asian countries,
Africa and Europe, known
shortly as the "One Belt and
One Road (OBOR) .
While China is upgrading its industrial
structure
A) China has become sophisticated builder

in the area of high-speed rail, high-way,
telecommunication and related products;
B) Industrial transferring -- moving of
make in China: low cost manufacturing
products to other lower labor cost
regions
C) Energy cooperation: China is a huge
energy consumer.
The prototype of a backbone passage
for the One Belt and One Road vision
A three-dimensional and multi-layer transport network
that connects them via land, sea and air to create
connectivity to stimulate trade, export, investment
between the neighbors, and to foster cross continental
integration
1. That includes the New Eurasian Continental
Bridge, which is regarded as the 'modern Silk
Road.
2. The China-Singapore Economic Corridor that
runs through the Indo-China.
3. China-Pakistan Economic Corridor.
4. The Bangladesh-China-India-Myammar
Economic Corridor that connects China to
South Asia.
The geographical expansion covered
by the One Belt One Road is vast:
Aiming to connect 65 countries,

Coving half of worlds population,
4.4billions
30% of global economy
The need of infrastructure investment
is $5 trillion.
Research done by PWC
Ongoing and planned projects will focus on the development of a wide array
of assets, including ports, roads, railways, airports, power plants, oil and gas
pipelines and renewable energies, and Free Trade Zones, etc., as well as a
supporting IT, telecom and financial infrastructure. To date, PwC has tracked
the equivalent of US$250 billion in projects that have either been built already,
recently started construction or have been agreed on and signed in relation to
One Belt One Road.
Outbound funds from China
1. PWC predicts that One Belt and One Road will mobilize
up to $1trillion of outbound state financing from the
Chinese government in the next 10 years.
2. Funding will come in the forms of loan creation, join

ventures, and special vehicles for capital allocations.
The Vision of 21st Century Silk Road
The Silk Road Economic Belt Preconditions for China to carry out OBOR:
a series of land-based A) Comparative advantage of
infrastructure projects infrastructure construction
a) Experiences;
including roads, railways, and
b) Materials supply;
pipelinesfocuses on
c) Building capacity
strengthening links between
China, Central Asia, Russia, B) Fund for investment: Chinas
and Europe. China will gain foreign exchange reserves
improved access to the Persian reached $3 trillion.
Gulf and the Mediterranean
Sea through Central Asia and a) Asian Infrastructure
West Asia, and to the Indian Investment bank was initiated
by China in 2015
Ocean through Southeast Asia
and South Asia.
b) RMB internationalization
Routes to Europe
Last Chinas freight train to London travels

12,000 km in 18 days
Cheaper than by air
Faster than by sea
Lower CO2 emission
The long distance of sea route from

London to Yiwu takes more 1 month
Source: FT
Project Example: China-Pakistan
highway
Chinese plans to invest $46bn
in a new "economic corridor"
between China and Pakistan.
The initiative will pass through
the disputed region of
Kashmir and Indian policy
analysts remain divided on
whether the project is a
strategic threat or an
economic opportunity for
their country.
Source: FT
PAKISTANS GEO-STRATEGIC GEOGRAPHIC
LOCATION
Regional Connectivity
Transport
Infrastructure
Energy Hub/flows
Logistic Hub/flows
To promote trade
& Commerce
And to promote
peace &
development of
region
China Pakistan Economic Corridor Long Term Plan :
Timeframe 2014 2030
I. Port of Gwadar ( including port and city and Gwadar region socio-economic
development)
II. Energy Infrastructure (Coal, Hydel, Wind, Solar, LNG , Transmission)
III. Transport Infrastructure (Road, Rail, Aviation)
IV. Investment & Industrial Cooperation (Gwadar Free Zone and other industrial
parks to be finalized)
PROJECTS Estimated US$ Millions

Energy projects 33,793
Transportation Infrastructure
Roads 6,100
Rail Network 3,690
Gwadar Port 786
Others 44
Total 44,413
An alternative strategic
transportation route for China
Labor Force:
All economically active people
between 15 and 65, employed or not
Developed nations have fewer
agricultural workers, more
manufacturing and service workers
Population theories and Population Trends in

Major Emerging Economies
Case Study: China at Lewis Turning Point
Case Study: Indias Labor Dividend
Case Study: Eastern Europe and Central Asia
Major Emerging Nation Demographic
Projections
2017 2026 2050
Bangladesh 164.82 M 180.64 M 202.21 M
China 1.388 B 1.41 B 1.34 B
Czech republic 10.55 M 10.53 M 9.96 M
India 1.34 B 1.47 B 1.70 B
Indonesia 263.51 M 286.83 M 322.23 M
Kazakhstan 18.064 M 19.56 M 22.44 M
Malaysia 31.16 M 34.75 M 40.72 M
Pakistan 196.76 M 230.80 M 309.63 M
Poland 38.56 M 37.79 M 33.136 M
Russia Federation 143.37 M 140.75 M 128.59 M
Turkey 80.41 M 85.40 M 95.81 M
Vietnam 95.41 M 102.77 M 112.78 M
https://populationpyramid.net
Reasons for declining fertility
family planning
missions
education levels
use of contraceptives
economic
opportunities for
women
declining fertility
Source: Ved Prakash: Changing Population of China and its impact on future economy and society of China - A Demographic comparison with India.
Global Fertility Rates
At the root of this demographic trend are lower fertility rates: only 2.5
children per woman on average, compared with 5 in 1950.
Russia Population forecast: three scenarios
Today, Russias population is approximately 143 million. The United States Census Bureau
estimates that Russias population will decline from the current number to a mere 111
million by 2050, a loss of more than 30 million people and a decrease of more than 20%.
i) A continuation of current trends (low), suggests Russias population will shrink by 20
percent over the next 35 years;
ii) a more realistic appraisal of the effectiveness of the measures taken to date (medium),
population will remain at the current level;
iii) an outcome reflective of the goal Russian demographic policy to 2025, population will
increase by 15 percent.
Source: Federal Migration Service of Russia; www.worldometers.info

Aging Population in Russia
Low fertility rate: It's about 1.61 births per woman, lower than the 2.1 per
woman needed for population replacement. That's better than the 1.2 rate
from the late 1990s, but still.
Men dying super young: A boy born in Russia today is expected to live to
approximately age 65. That's 15 years less than in Germany, Sweden, or Italy.
Chinas Demography Going Over the Lewis
Turning Point
Rural Migrants to Major Cities and
Industrial Coast Area
The Lewis Turning Point
As a society moves from an agricultural to an industrial economy, the balance
of labor demand and supply shifts as well.
In the initial stage of development, most people remain in rural areas,

engaged in agricultural production. When this concentration of workers leads
to underemployment in rural areas, the industrial sector can expand and
increase its labor force with no pressure to raise wages. Thus there may
follow a period of industrial growth with no rise in real wages. However, as
the industrial sector develops to the point where the supply of labor from
the agricultural sector becomes limited, industrial wages begin to rise quickly
Arthur Lewis (1954) first conceptualized this process of economic

transformation. In the literature, the structural change from an excess supply
of labor to one of labor shortage is often called the Lewis turning point.
a low-productivity
sector with excess
labor (agriculture, in
Developing Chinas case)
economies
high-productivity
sector (manufacturing
in China).
When an economy first becomes industrialized it grows very
fast by importing foreign technology and employing capital
and plentiful, cheap, unskilled labor from the farm.
After a while the extra agricultural labor is put to work and

wages start to rise. This makes firms less profitable and they
have to come up with their own technology to keep growing.
This shift is known as the Lewis Turning Point a point at

which a country would move from a vast supply of low-cost
workers to a labor shortage economy.
Chinese labor cost becomes more and more
expensive
Minimum wage
levels in selected
towns and cities
across China
This has led to many low cost, labor intensive industries such as garments, toy and
shoe manufacturing transferring some production to these cheaper locations.
Chinas Demographic Transformation
Source: Il Houng Lee, Xu Qingjun, and Murtaza Syed Chinas Demography and its Implications IMF WP/13/82
China's Demography and the Lewis Turning Point
Shrinking workforce
Source: Mitali Das and Papa NDiaye: The End of Cheap Labor. June 2013. http://www.imf.org/external/pubs/ft/fandd/2013/06/pdf/das.pdf
China's Demography and the Lewis Turning Point
Population pressure
Source: Mitali Das and Papa NDiaye : The End of Cheap Labor (June 2013). http://www.imf.org/external/pubs/ft/fandd/2013/06/pdf/das.pdf
Effects and consequences of aging
Young population of China made a major
contribution to rapid economic growth in a way
that it provided abundant and cheap labor for
Chinese industries (also Vietnam). With aging
population, industries will find it hard to find cheap
labor for them and hence their profits are going to
go down. It is almost impossible for China to
maintain its current growth rate in future without
any significant change in the one-child policy. (NB:
two-child policy since Dec 2013.)
China Ended One-Child Policy,
Allowing Two Children Per Family
October 29th, 2015, Chinas government decided

to allow all couples to have two children as
response to an ageing population and amid
concerns over economy.
POPULATION
DENSITY
1979 The One Child Policy Family planning propaganda
In 1979 the authorities tightened their control

and limited households to only one child.
The goal of this policy was to limit Chinas

population to 1.2 billion by the year 2000.
There are no sanctions for couples that have multiple births (i.e twins).
As a result, some wealthy couples are turning to fertility medicines to have multiple births, due to the lack
of penalties against couples who have more than one child in their first birth.
Ethnic minorities are formally excluded from the policy (8% of the pop).
If both parents are only children, they are allowed to have more than one child provided the children are spaced
more than 4 years apart.
In most rural areas if the first child is a girl couples are allowed to have another child.
Families who have children with mental or physical disabilities are sometimes allowed to have another child.
Son preference created demographic distortion
Chinas sex ratio at birth of 118 male infants for every 100 female infants is likely to be
due to 3 factors;
1. underreporting of female births
2. excessive female infant mortality
3. and prenatal sex determination and sex-selective abortion
In most age groups China has a larger

male than female population,
particularly in young age groups
where the surplus in male
population is substantial. This well-
known phenomenon, called missing
girls, is due to the strong preference
for male births in Chinese rural
society, especially in the past. The
three decades the one-child policy
has certainly contributed to cultural
favouritism towards boys. It is
believed that only boys can later keep
up the family tradition. In rural areas,
0-14 years: 17.1% (male 126,732,020/female 108,172,771)
farmers want to have at least one
25-54 years: 48.42% (male 339,183,101/female 325,836,319) male child to take over the family
55-64 years: 10.87% (male 75,376,730/female 73,859,424) farm.
65 years and over: 10.35% (male 67,914,015/female 74,205,210) (2016 est.)
Today Chinese Men Outnumber Women by
33 Million After Three Decades of Gender
Bias
China 1982, Sex Ratio Ages 0-14 China 2000, Sex Ratio Ages 0-14
China now has the lowest fertility rate in the world1.05
according to Chinas 2016 State Statistical Bureau data and
reported by Liang Jianzhang and Huang Wenzheng in a
recent Caixin article. During Mao Zedong's
rule the population
policy of China was
the more people,
During the 1960s the the stronger we are,
leading to
population growth rate
overpopulation and
averaged 2.4% per year a series of famines.
When Deng Xiaoping
took power in 1978,
his new policies
focused on
strengthening
China's economy,
and he saw
overpopulation as a
block to economic
development.
China demographic projection
As the one-child policy approaches the third generation, one adult child supports
two parents and four grandparents.
This leaves the oldest and most vulnerable
generation with increased dependency
on retirement funds,
the state, or charity
for support.
Briefing on Education System in China
Pre-school Elementary Secondary Secondary Higher education

education education education education
Compulsory Compulsory
education education
Kindergarten Primary school Regular junior Regular senior Graduate school

Pre-school class middle school middle school
University
Secondary
Vocational junior vocational school College
middle school
Technical school Short-term
vocational
Vocational university
middle school
Advanced
technical school
Financing of Education in China
Local schools are financed by local budgets.
Central treasury of China also provides some
funding.
States investment was 3.41% of GDP
Other financial input
Social enterprises
Extra fees tuition
Fundraising
Donations
Indias Demographic Dividend
Source: Reaping Indias Promised Demographic Dividend Ernst and Young, and FICCI, 2013
Indias Demographic Profile
Population: 1,266,883,598 (July 2016 est.)
Dependency ratios
total dependency ratio: 52.4%
youth dependency ratio: 43.9%
elderly dependency ratio: 8.6%
potential support ratio: 11.7% (2015 est.)
Median age: 27.6 years (2016 est.)
Population growth rate: 1.19% (2016 est.)
Birth rate 19.3 births/1,000 population (2016 est.)
Death rate 7.3 deaths/1,000 population (2016 est.)
Infant mortality rate: 40.5 deaths/1,000 live births
Life expectancy at birth: 68.5 years
Total fertility rate: 2.45 children born/woman (2016 est.)
Literacy: age 15 and over can read and write, 71.2%
School life: 12 years
Child labor - children ages 5-14 total number: 26,965,074, 12% (2006 est.)
Education expenditure: 3.8% of GDP (2012)
Health expenditures: 4.7% of GDP (2014)
Physicians density: 0.7 physicians/1,000 population (2012)
Hospital bed density: 0.7 beds/1,000 population (2011)
Age structure
65 years and over: 6.09% (male 36,549,003/female 40,598,872) (2016 est.)
rst important reason for cheer is increase in life expectancy. India has seen dramat
crease in life expectancy resulting in greater longetivity. For example, around the middle o
he 1900s, the life expectancy in India was merely 32 years. By the turn of the century, li
xpectancy doubled to 64 years. In 2011 the life expectancy in India reached 65.48 year
hat year, the life expectancy for women was 67.08 years and for men 63.95 years (Figure 1
Figure 1: Life Expectancy in I ndia
Source: UNDP, 2013

fe expectancy
Source: Reaping rose rapidly
Indias Promised in India
Demographic due Ernst
Dividend to improvements in health care facilities 1, nuritio
and Young, and FICCI, 2013
renatal care, water and sanitation facilities, medicine and advancements in technology th
India is poised to become the worlds
youngest country by 2020
India is expected to become one of the most populous nations by 2025, with a
headcount of around 1.4 billion. The countrys population pyramid is expected to
bulge across the 1564 age bracket over the next decade, increasing the working
age population from approximately 761 million to 869 million during 20112020.
Consequently, until 2020, India will be experiencing a period of demographic

bonus, where the growth rate of the working age population would exceed that
of the total population.
Around 64% of Indias population is expected to be in the age bracket of 1559

years by 2026, with only 13% of the total aged above 60 years. India is poised to
become the worlds youngest country by 2020, with an average age of 29 years,
and account for around 28% of the worlds workforce. In comparison, during the
same period, the average age is expected to be 37 years in China and the US and
45 years in Western Europe.
Year
Age Group 2001 2011 2021 2026
0-14 35.50 29.00 25.10 23.40
15-59 57.80 62.70 64.0 64.30
60+ 06.90 08.20 10.70 12.50
Source: Census of India
Note: All numbers are in percent of total population.
nas demographic dividend would start tapering off by 2015, India is expected to
benfit until 2040. An increasing proportion of working population will provide a
f opportunity to improve labor productivity, increase domestic production,
Within 15
venue from services, increase savings and reduce the burden of old residents on
yearsEmpowered
ng population. the with unique demographic advantages and guided
dia is poised to position itself among developed economies within the next 1015
Indian
idea of Demographic Dividend assumes that more people in a certain age group
workforce will
more jobs and more income for the country. Since a majority of the youth knock
ors of the be largermarket
labour than right by the age of 15, the youth segement of the
will also have to be considered in relation to the larger working age (15-59 years)
. As on 2010,its Chinese
half of Indias population is below 25 years of age, and 62 per cent
ulation is in the working-age group. India, thus, accounts for 17.5 per cent of the
counterpart
tal working-age population. From 2010 to 2030, Indias total working-age
andrise
is poised to it will
fromstay749 million to 962 million, accounting for about 28 per
increase in the worlds total working-age population over the period. In contrast,
younger
g-age population of China will shrink by 45 million. More important, the median
an will be 32 years in 2030, much younger than US with a median age of 39 years,
India is the most logical candidate to replicate
Chinas success in becoming a manufacturing
powerhouse. Taneli Ruda, Thomson Reuters
India has low unemployment rate, however almost 80 per cent of the total labor
force was either self-employed or working as casual labor.
The proportion of jobs in the un-organized sector without formal monthly
payment or social security benefits - is set to rise to 93 percent in 2017.
Working Conditions
Minimum Wage in India
Wages and earnings
Monthly average and legal minimum wages
Current 2011 US
Source
rupees (Rs.) Dollar
Average wage
Global 6,273 142
(2010)
Wage
Minimum wage
Database29 2,990 64
(2011)
Minimum wage for a
19-year old worker or 1,665 28.4
an apprentice (2014) Doing
Minimum wage to Business30
value added per 0.15
worker (2014)
Wage Share
Unadjusted 30 %
(2009)
Growth of real Global
average wage Wage -2.6 %
31
(2000-2010) Database
Growth of real
minimum wage 28 %
(2000-2011)
Ratio of minimum wage to value added per worker denotes the
http://www.ulandssekretariatet.dk/sites/default/files/uploads/public/PDF/LMP/lmp_india_2014_final_draft.pdf
Workforce Employment Rates
36 Percentage of job
Employment rates (%)
(2013), Age and Sex distribution created for women is
Employment
especially concerning.
Sex Age 29
rate 25+ 89
Male & Total 15+ 52 % 60
female Youth 15-24 32 % 15- 16
Adult 25+ 60 % 46
24
32
Male Total 15+ 77 %
Youth 15-24 46 % 26
15+ 77
Adult 25+ 89 % 52
Female Total 15+ 29 %
00 20 40 60 80 100
Youth 15-24 16 %
Female Male Male & female
Adult 25+ 29 %
The employment-to-population ratio is defined as the proportion of a country's working-age population that is employed. A high ratio means that
a large proportion of a country's population is employed, while a low ratio means that a large share of the population is not involved directly in
The trend is especially worrisome for in fiscal
market-related activities, because they are either unemployed or (more likely) out of the labour force altogether.
2016, according to the report.
India has a total population
India needs to generate about 12m jobsof 1.3 billion people out of increase in the middle class, though not as strong as
which the labour force covers slightly more than 484
The proportion of jobs in the un-organized
the growth in upper middle class as the average of
annually
million to meet
workers. the needs
Regional variations of are
its young people, Asia:
significant, sector
In Asia23% without
lived forformal
US$2-4 monthly payment
a day and 8.5% for o
in recent
where years,
language, around
ethnic 5 millions
and religious has been
differences affect socialinsecurity
US$4-20 1999. In 2008benefits - is set
28% lived to riseato
for US$2-4 day93
created
labour every
market year.and thereby maintain regional
mobility andpercent
21% for US$4-20.
in 2017.In India 15% lived for US$2-4 a
differences. The Indian labour market is also day and 2.8% for US$4-20 in 1993. In 2004, 20% lived
segmented along several overlapping lines along caste, forMeanwhile,
US$2-4 a day and the4.5%
unemployment
for US$4-20. The rate
dollarsfor
are
gender, wage, working conditions and status in graduatespower
in purchasing andparity.
thoseDatawith even
after 2004more
where the
37 38
employment. qualifications
middle was 28 per
class in India especially
http://www.ulandssekretariatet.dk/sites/default/files/uploads/public/PDF/LMP/lmp_india_2014_final_draft.pdf
grewcent. Almost 80 per
is not available.
Rural wages are at a decadal low, as agriculture which
accounts for 47% of jobs contracted 0.2% in 2014-15,
growing 1% in 2015-16.
Labor Skill Development Challenge in India
India faces a considerable skill development challenge. Around 12 million people are
expected to join the workforce every year over the next decade although the country
has a total training capacity of around 4.3 million, thereby depriving around 64%
entrants of the opportunity of formal skill development every year.
Job creation scenario in India
Job creation has not kept pace with GDP growth during the last decade. GDP growth
increased from approximately 6% during 2000-2005 to 8.6% during 2005-2010;
however, net jobs created remained creation during 2005-2010 was approximately 5
million, which is a sign for worry, considering that around 12 million people join the
workforce every year.
The job creation scenario in the manufacturing sector is more serious because the
sector has shed several jobs over the past few years and has not been able to adjust the
exodus from agriculture, which happened due to the modernization of Indias economy.
In addition, most of the jobs created by the industry are low productivity and non-
contractual jobs in the unorganized sector, offering low incomes, little protection, and
productivity; however, the employment growth in the sector has been slow in recent
years.
The overall challenge for the country is to create the conditions for faster growth of
productive jobs, outside of agriculture, especially in organized manufacturing and
services sectors.
1
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University Sebelas Maret Surakarta

Human capital, infrastructures, and

Education to Economic Development

Human Capital to Economic Development

Working with Existing Developing

In every East Asian

Productivity provides a simple but powerful indicator of the ability of a

A more sophisticated productivity measure, total factor productivity (TFP),

There are 4 factors of production that influence

China 2.3 1.3 0.2 0.1 -1.3

World 0.9 0.1 0.0 0.0 -0.3

Emerging Markets and

1.5 United States

Labor productivity growth Total Factor Productivity growth

World World 1999-2006

Mature Economies Mature Economies

United States United States

of which: Euro Area of which: Euro Area

Other Mature Other Mature

Emerging Markets and Emerging Markets and

Other Developing Asia Other Developing Asia

Latin America Latin America

of which: Mexico of which: Mexico

of which: Brazil of which: Brazil

Sub-Saharan Africa Sub-Saharan Africa

Russia, Central Asia and Russia, Central Asia and

Pre-2005 trend Post-2005 trend

Providing skills which attract

Enrollment rates have improved worldwide

Source: UNPD. Human Development Report 2015

The Index assesses Learning and Employment outcomes on a scale from 0

014 years the youngest members of the population for whom

Figure 2. Growth in Enrollment Ratios in Secondary Education

1960 1965 1970 1975 1980 1985 1990 199496

Source: UNESCO and national sources.

Figure 3. Growth in Enrollment Ratios in Higher Education

Figure 3. Growth in Enrollment Ratios in Higher Education

Source: UNESCO and national sources.

Figure 4. Educational Levels of the Labor Force

Note: Latest available estimate.

Figure 1. Growth in Human Development Index

Source: UNDP (1998).

Table 2. (percent) Rates of Return to Education

. Not available (or not estimated).

Government planning has remained absolutely central to

Observed in both the initial and recent years, public expenditures on

Public Spending on Education

Figure 5. Growth in Allocation of Resources to Education in East Asia

Source: UNESCO and other sources.

Hard infrastructure refers to physical structures or facilities that

Soft infrastructure refers to non-tangibles supporting the development

I mpact of Education and I nfrastructure

on Growth in East Asia 10 0 1 2 3 4 5 6

Thailand, Tonga, Vanuatu, and Vietnam.

In todays world, products may routinely be assembled from components transported

Was introduced Linked by Cluster Benefit:

Michael Porter:as a business cluster, competitive cluster,

Guangdong has formulated Intelligent Manufacturing

Pearl River Delta

Ports Intercity railway completed/ in operation

Hong Kongs share of total exports

Investment in infrastructure is not only critical for Indias battle

significant constraint on India's growth potential