Economic history its trends and future

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Transcript of Economic history its trends and future

Page 1: Economic history its trends and future
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Economy: A Social Institution

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1.Economic institution is also one of the most basic institutions.

2.Even the primitive societies have them but of very old and simple

nature.

3.Technology and industry have a role in developing

the economic system in modern societies

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• Definitions:• Definition Of Economy

By John J.Macionis:• “Economy is the social institution that organizes a society’s production, distribution, and consumption of goods and services”.

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• “It is a social institution that accomplishes the goal of producing and distributing goods and services with in society called economic institution.” (Calholm, Light & Keller)

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“Economic system is a complex of inter-related institutions through which the economic activity of man is expressed. Economic activity is the production and distribution of goods and services.”

(P. Gisbert)

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• International Trade:Economic Institutions promote International Trade and improve relations between countries.

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• Promote Stability:By promoting stability, we can reduce vulnerability to crisis, encourage sustained growth, high living standards, reducing poverty, adverse healthcare, lack of food, unemployment, and insecurity.

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• Need SatisfactionIt is a major function of Economic Inst – provides people with basic needs, food, healthcare, livelihood, transportation, entertainment.

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• Income Generation & Employment:

By providing employment, people have a

source of income generation. This

promotes stability and consequently progress in

society.

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• Division of Labor:Labor is divided on basis of skills and abilities of people. This allows them to become expert in their field, and increases efficiency. This principle is now being applied in Rural areas as well.

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•Encourage Business:By giving loans, and creating business laws, investors can be attracted to set up new businesses around the world.

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• Reduce Issues:Economic Institutions help plan for future needs, and make arrangements to reduce poverty, illness, hunger, and illiteracy.

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•Promote TradeEconomic Inst. Promote trade, facilitate transactions and permit economic cooperation resulting in the creation of new jobs and overall improvement in economy & infrastructure

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• Promote Investment:In a secure environment, investors start new projects.

• Innovation and Invention:Economic Inst. Promote technological innovation, research and innovations.

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• Social Stratification Economic Inst. Distribute the resources which allows society to be divided into various classes, such as higher class, middle class and lower class with clearly established boundaries between them.

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• Primitive Societies:

• - Earliest Record of Economic Systems• Examples: Cro-Magnon people, Eskimo.• Lived on hunting and gathering• Concept of shared property• Gathered and Stored food (Rich People)• There is considerable difficulty of describing any part of ancient activities as constituting an “economy.” (Elizabeth Marshall)

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• Agricultural Revolution:• - About 5000 years ago, it began• People settled in communities, began to grow food and domesticate animals.

• Surplus of food meant people could find other work.

-Agricultural revolution is known for: • Agricultural technology (tools, etc.)• Permanent Settlement• Trade started between communities.

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• Industrial Revolution:• Mid 18th century, England and North America

• Major changes in agriculture, manufacturing, mining, transportation

• Focus on Experimentation and Invention

• New sources of energy: Manual labor replaced by Steam Engine

• Steam Engine Used in Factories

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James Watt – 1765, Steam Engine

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1778 – Iron bridge (Abraham Darby)

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• Mass production of goods (lot of raw material, finished product from one factory)

• Division of labor and specialization of work

• Concept of laborers: less important than the machines

• Child Labor• Exploitation• Polluted environment, safety hazard• Women worked hard for low wages

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Major Inventions

1760 – Spinning Jenny (James Hargreaves)

1793 – Cotton Gin (Eli Whitney)

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Major Inventions

Robert Fulton, Steam Ship 18071879 – Light bulb (Thomas Edison)

1876 – Telephone (Alexander Bell)1892 – Diesel Engine (Rudolf Diesel)

Source: Encyclopedia Britannica (Online)

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• Post Industrial Societies• - System introduced in 1950• Focus on specific jobs, not labor, and high use of technology

• Computer has resulted in ‘Information Age’

• Workforce has changed from laborers to machine operators, technicians, clerks.

• Highly qualified people employed as managers and supervisors

• Shift from mechanical skills to mental, analytical and literary skills.

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• Economic Systems can be divided into:

• Capitalism

• Socialism

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• In capitalist economies, there is a high ownership of wealth producing property, like factories, land, etc.

• People can take any measures to extract maximum profit, including price fixing, price mafia, shortage, etc. Govt regulation of business causes negative effects including strange regulations, political pressure, etc.

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• Pure Capitalism proposes ‘free market’ system without any government rules. Adam Smith said: “A free economy governs itself by invisible hand, it is the consumers who regulate the economy and market by defining their demand.”

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• Capitalism is defined as “A type of economy based on private ownership of most resources and goods and the freedom to use them to get the most profit”.

• Features• Private Ownership of goods, resources, property, etc.

• Freedom to obtain maximum profit

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• System of open markets (anyone can enter)

• Competitive market system• Govt established rules of business and trade*

• Govt institutions include military, and some education, and infrastructure development facilities

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• Is USA Capitalist?

•Yes:

• Private ownership of business• Free and open market• Freedom to obtain maximum profit

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•No:

• Govt regulation of business• Minimum Wage level• Worker health insurance and

• safety• Labour rights

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• Socialism is defined as “An economy that is based on government ownership, rather than individual ownership, worker controlled government and equal distribution of goods and services”

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•Features• Public/Govt Ownership of resources, property, etc.

• Govt controls all manufacturing (mean of production)

• Markets have restricted access ( ban on imports )

• Govt controls all establishments, include military, education, healthcare, etc.

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• Private ownership rights are limited, there is collective ownership.

• People must pursue collective goals not personal goals (E.g feed the country, not buy mobile phone)

• Economy and trade are completely under the government.

• Due to limited choice, there is little or no advertising.

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• Functions of Economy & Economic Systems

Karl Marx:Conflict Perspective

1- Economic Inst. are the base of all other institutions in society.

2- Serves interest of only to the owning class

3- Business Cycles: Caused by Capitalist greed.

4- At peak, the worker’s are faced with alienation, exploitation.

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6- Concept of Alienation

7- Purchase of cheap labor caused alienation

8- Society is governed by class struggle (rich / poor)

9- Eventually the poor will bring about revolution

10- Economic inst. Form the basis of society’s super structure

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Functionalist Perspective

1- Economic Inst. are an important component of society.

2- Goods & Services for the survival of society.

3- Business Cycles: Part of economy

4- At peak, workers are hired, more expansion happens. Social Mobility.

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6- Individual actors, work for benefit of society.

7- Certain needs must be met for survival

8- Institutions fulfill these needs

9- A stable ordered system is created

10- Each structure has a function to contribute to the stability of the whole

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Symbolic Interactionism

1- Economic Inst. shape and affect our behavior. (Belonging or Alienation)

2- Important to determine sense of belonging.

3- Business cycles shapes our perception of these inst.

4- Intrinsic and Extrinsic values must be seen to determine effect on workersIntrinsic: Nature of WorkExtrinsic: Salary, Vacation, etc.

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6- We attach meanings to symbols.

7- These meanings define our understanding.

8- Effective communication

9- Chance of misunderstanding

10- Anything that conveys meaning is considered a symbol

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Conflict Perspective

5- A recession causes people to lose jobs, create unrest.

6- Main features including govt. are determined by it.

Functionalism

perspective

5- Recession must be stopped by government, it will cause unrest.

6- It is inter-related and inter-dependent with other institutions.

SymbolicInteraction

5- Workers work harder and more in a recession to save their company.

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Aims of a Good Economic System:

Economic growth

Socio-economic development

Maximum Possible employment

Prices Stability

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• Land / Natural Resources

• Labour / Workforce

• Capital: manufactured stock of tools, machines, factories, offices, roads and other resources used in the production of goods and services.

• Market: occurs whenever buyers and sellers are in contact with each other

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• Oligopoly: market structure where there is a small number of firms in the industry and where each firm is interdependent with other firms.

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Monopoly: market structure where one firm supplies all output in the industry without facing competition because of high barriers to entry to the industry.

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Sectors of Economy

Primary sector Secondary sector Tertiary sector

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•Primary Sector: “The primary sector of the economy extracts or harvests products from the earth.” The primary sector includes the production of raw material and basic foods. Activities associated with the primary sector include agriculture, mining, forestry, farming, grazing, hunting and gathering, fishing, etc. The packaging and processing of the raw material associated with this sector is also considered to be part of this sector.In developing countries, economy depends more on Primary Sector – In Western countries, economy is less dependent on primary sector.

Source: Macionis, J.J. Sociology (2010)

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• Secondary Sector: “The secondary sector of the economy manufactures finished goods.” All of manufacturing, processing, and construction lies within the secondary sector. Activities associated with the secondary sector include metal working and engineering, car manufacture, textiles, chemical and technological industries, energy sector and construction.

• Examples: Pakistan Steel Mills, Toyota Indus Motors, Nishat Mills, etc.

Source: Macionis, J.J. Sociology (2010)

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• Tertiary Sector: “The tertiary sector of the economy is the service industry. This sector provides services to the general population and to businesses.” Activities associated with this sector include retail and wholesale sales, transportation and distribution, entertainment (movies, television, radio, music, theater, etc.), restaurants, clerical services, media, tourism, insurance, banking, healthcare, and law.

• Examples: PTV, Geo, Jang, MCB Bank, etc.

Source: Macionis, J.J. Sociology (2010)

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• GDP: • The total market value of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year.

• GNP:• The total market value of all goods and services produced by the citizens of an economy during a given period of time, usually one year and includes income from abroad.

Source: World Economic Glossary 2011

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GDP GNP

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• Human Development Index (HDI):

• compares countries on the basis of real GDP, life expectancy, education (literacy and school enrolment)

• Human Suffering Index (HSI):• takes into account factors such as access to clean water, adequate food, and education.

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• Goods: “means physical, tangible products used to satisfy people's wants and needs.”

• Short Run: period of time when at least one factor input cannot be varied.

• Long Run: period of time when all factor inputs can be varied.

Source: World Economic Glossary 2011

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• Nominal: values unadjusted for the effects of inflation / values at current prices

• Black Market: “An illegal market in which the price of the goods sold is above a legally set maximum price. A black market invariable”.

• Budget: A statement of the financial position of a business, or government--based on estimates of anticipated revenues and expenditures.

Source: World Economic Glossary 2011

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• Balanced budget :is if the revenues and expenditures are equal.

• Budget Deficit: A budget deficit arises if expenditures exceed

• Budget Surplus: revenues and a budget surplus exists if revenues are greater than expenditures.

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• Demand: “The ability to buy goods at a range of prices, during a given time period.”Demand is one half of the market exchange process; the other is supply. Demand is created by the wants and needs of people.

• Supply: “The ability to sell a range of quantities of a good at a range of prices, during a given time period.” Ownership and control of resources is the ultimate source of supply.

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• What things are included in the ‘Economy’?

• An economy may include several sectors (also called industries), that evolved in successive phases. The ancient economy was mainly based on farming and gathering (barter system).

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• The industrial revolution introduced mining, construction and manufacturing industries as part of economy.

• In the age of technology, we have today Information Technology, Financial Services, Manufacturing Companies, Social Organizations, Farming, Public and Private Sector Businesses.

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• Technology companies: PTCL, Ufone, Warid, Etc.and many others………..

• All these elements: - Create jobs/livelihood - Provide Services - Increase or Generate revenue - Open doors for trade & business

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Global economy

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U

Unemployment

The USA department of labour regularly reports data on the unemployment rate the percentage of these not working but officialy defined as looking for work, currently almost 8.8million people are officially unemployed

Source: US department (2006)

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UNDEREMPLOYMENT

Underemployment refers to an employment situation that is sufficient in some important way for the worker,relative to a standard..

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Conglomerates:A conglomerates is a combination of two or more corporations engaged in entirely different bussiness that feel under one corporative system..

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Multinationals: Companies

or corporations that manages production and deliver services in more than one country..

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As of 2006 there were 63,000 multinationals with over 700,000 branches scattered across the globe

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• Post Industrial Societies (Information Age)• - Computer changed way of storing, receiving and

analysing information• Use of computers and robots for manual work• Networking has created a ‘global village’• Shift from physical skills to computer skills• Work from home concept• Internet allows communication, banking,

entertainment, etc.• Shift to renewable sources of energy• More access to information through social media

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• “The international network of individuals, businesses, governments, and multilateral organizations which collectively make production and consumption decisions”

• GDP tells us about our country's economy by telling us the total money value of all final goods and services in our country.

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• Globalization:“A global movement to increase the flow of goods, services, people, real capital, and money across national borders in order to create a more integrated and interdependent world economy.”

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2011 EconomiesRanking Country

Approximate GDP- Purchasing Power

Parity

1 United States of America $14,624,180,000,000

2 China $10,084,370,000,0003 Japan $4,308,630,000,0004 India $4,001,100,000,0005 Germany $2,932,040,000,0006 Russia $2,218,760,000,0007 Brazil $2,181,680,000,0008 United Kingdom $2,181,070,000,0009 France $2,146,280,000,00010 Italy $1,771,140,000,000

Source: CIA World Factbook

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TRADE IN GOODS AND SERVICES, % OF GDP IN 2004

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Source: Forbes Magazine Online Edition

Top 25 Business Companies 2010

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Top 25 Emerging Business Companies 2007

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Planning Commission Pakistan – GDP comparisons

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Source: World Development Index

Growth Rates of Regional Countries 1961-2009

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•G20 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Korea, Turkey, the United Kingdom, the United States and the European Union.

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Mass Media and Economy Mass media refers collectively to all media technologies that are intented to reach a large audience via mass communication

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Collapse of global economy in 2012

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Economy As Social Institution In Pakistan

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• The economy of Pakistan is 27th largest in the world (in absolute dollar terms).

• Pakistan has a semi-industrialized economy including textiles, chemicals, food processing, agriculture and other industries.

• Growth poles of Pakistan's economy are situated along the Indus River and Karachi and Punjab's urban centers.

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• GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06 due to economic reforms in the year 2000 by the Musharraf government.

• In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally.

• Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could reduce growth.

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• Indus Valley Civilisation from 2800 BC to 1800 BC carried trade through the Indus River, and its inhabitants were some of the most resourceful traders.

• Pakistan's average economic growth rate since independence has been higher than the average growth rate of the world economy during the same period. Average annual real GDP growth rateswere 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade

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• During the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression. The capital Karachi was seen as an economic role model around the world, and there was much praise for the way its economy was progressing. Many countries tried to copy Pakistan's economic planning strategy and one of them, South Korea, copied the city in its capital Seoul.

• Later, economic mismanagement in general, and improper economic policies as well as two wars with India and the separation of Bangladesh negatively affected economic growth.

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Source: Planning Commission of Pakistan, 2010

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Source: Planning Commission of Pakistan, 2010

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Source: Planning Commission of Pakistan, 2010

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Health….World Health Org defines health as “a

state of complete mental, physical and social well-being and not merely the absence of disease or infirmity” .

It increases the welfare of people in five ways:

Helps avoid mental stress and a

general dissatisfaction of an individual from his life.

Second illness leads to social exclusion which ultimately leads to a deteriorating quality of life.

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Third it increases the productivity of a person as a healthy person can work more means more productivity and more income both at individual and national level.

Fourth it enables a person to realize his full potential and utilize his maximum creative ability for innovation.

Fifth helps people to come out of the vicious circle of poverty as low income causes ill health or malnutrition which lowers the worker productivity and low productivity means low income and so this vicious process continues.

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TRENDS IN GROWTH OF PUBLIC HEALTH INFRA STRUCTURE

0250500750

10001250150017502000225025002750300032503500375040004250450047505000525055005750

YEARS

HOSPITALS

DISPENSARIES

BHUs SUB HEALTHCENTRESMATERNITY CHILD ANDHEALTH CENTRESRURAL HEALTH CENTRES

TB CENTRES

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PovertyAlthough Pakistan has maintained a

much higher growth rate compared to the region`s average annual growth rate, it has been unable to eliminate poverty.

The reasons include improper economic policies as well as

Neglect of rural areas, as well as areas such as Balochistan on political pretenses

Improper system of Zakat and Kherat in the country,

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Inability to reduce and eliminate begging. Begging becomes an easy profession for people.

The basic pre-requisite is to introduce structural changes in the economy which requires vision, sincere effort, political will, and good governance; some key characteristics unfortunately not present in our ruling elite be it the political elite or civil-military top brass. The poverty in Pakistan during Bhutto` s regime decreased because of doing land reforms to some extent

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LOW PRODUCTI

VITY

LOW INCOME

POVERTY

INADEQUATE DIET

HEALTH

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Poverty Trends in Pakistan

0

10

20

30

40

50

60

1963-64

1966-67

1969-70

1979 1984-85

1987-88

1990-91

1992-93

1996-97

1998-99

2000-01

Years

Perc

enta

ge

TotalRuralUrban

Source :( Zaidi, S. Akbar, Issues in Pakistan economy, chapter 19)

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Pakistan is still a low income country and it would require at least next 14 years of 7 percent average annual GDP growth to double its per-capita income to around $ 2000.

Mail to Jawaid Bokhari, Karachi on

10-3-200Dawn 7

PAKISTAN’S ECONOMIC FUTURE

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It is easy to make this normative statement but more difficult question is how can this growth rate be achieved on a sustained basis? Pakistan was one of the few countries that grew by 6 percent annually between 1960 and 1990. Growth momentum can also dissipate if other existing or emerging structural constraints and bottlenecks are not resolved on time.

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It is possible to reach this goal of doubling the per-capita income by 2020

Reducing the poverty by half by 2015. But for this some preconditions has to be made…….!

What are these preconditions?

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(A) favorable global economic condition

(B) successful integration of Pakistan into

the global economy .(C) Pursuit of sound, credible and consistent economic policies (D) strong institutional delivery and governance framework

(E) investment in physical infrastructure

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