What does the GDP tell us about the economy?
A simple measure of the total output produced in an economy is its Gross Domestic Product or GDP. This is the sum of the value added in all the different sectors of an economy over the course of a year.
The composition of the gross domestic product gives us further information about the structure of the economy and its level of development. One way of breaking down the GDP of a country is to look at share of the primary sector (agriculture, fishing and mining), the secondary sector (industry, manufacturing and construction), and the tertiary sector (services) in GDP.
This is a particularly interesting way of looking at the composition of GDP since the shares of these sectors change as economics become more developed.
What is the primary sector?
Economists define the primary sector as the economic activities that involve using natural resources. These activities include agriculture, fishing and mining.
The most basic economic societies are largely involved in primary sector activities as these activates are the most essential for human survival.
While the products of the primary sector are vital for survival, they are generally not very valuable products. Economies cannot get rich simply by producing agricultural products unless the country has a lot of land and can mass-produce agricultural products using mechanization.
Some economies are also lucky to have large deposits of minerals or oil, and these economies can get rich for a time by selling the products of their primary sectors as long as supplies last. However, in general, primary sector activities are limited in scope and it is very difficult to raise productivity in this sector without the development of mechanization.
Moreover, as the per capita income (the average income of a country) rises, the demand for agricultural products generally grows at a much slower rate because there is a limit to how much agricultural products each individual can consume.
Countries generally become richer by moving from agricultural production into manufacturing, and as the pop8ulation gets richer, they demand the consumption of a greater proportion of manufactured products. In general, we would expect that as an economy becomes richer, the value of output of the primary sector would decline as a share of the value produced by the whole economy.
What is the secondary sector?
The secondary sector consists of activities that process and manufacture products. These activities include manufacturing and construction of all types. Manufacturing can use natural inputs form the primary sector, but can also use intermediate manufactured products from other manufacturing sectors as inputs.
As economies become more productive, the share of the secondary sector in the total value of output produced by the economy increases. This is because manufacturing makes products that are more valuable than the products of the primary sector.
Thus if economies are to become richer, they have to produce a greater share of manufactured products. At the same time, as incomes increase, the demand for manufactured products also increases.
This means that as countries become richer, they are likely to be producing more manufactured products, and their populations will demand a greater share of manufactured products in their consumption. We would expect that as an economy becomes richer, the value produced by the total economy.
However, when economics become very rich, the value Produced in the service sector can rapidly increase as a share of the total value of the economy as labor shifts into very high-value services such as advanced financial services, medicine, higher education and research.
But we would expect most service- sector activities in poor economies to be low value services. We would therefore expect the service sector to decline in value in most poor economics as the economy became richer.
The starting point for East Bengal in 1947: mainly agricultural
When Bangladesh became independent of British colonial rule in 1947, it was initially as East Pakistan, the eastern wing of the new state of Pakistan. East Pakistan was carved out of the British Indian provinces of Bengal and Assam, and consisted largely of the poorer, eastern parts of the province of Bengal, which were mainly agrarian.
The industrial base of Bengal during the British period was around Calcutta, and this was lost by East Pakistan when Bengal was divided as are slut of the partition of 1947. Thus not only was Bengal poor during the British period, the eastern part was particularly underdeveloped as it was largely agricultural and it supplies rice and raw materials (such as jute) for the industrial belt near Calcutta.
How did this compare with West Pakistan and India?
When this agrarian part of Bengal became part of the new state of Pakistan, it started with an exceptionally low share of manufacturing industry in the total value of production in the economy.
West Pakistan was also largely non-industrial and supplied cotton and wheat for industries located in Western India. Most of the industrial base of British India was in the parts that remained in India after the 1947 partition, and so the share of manufacturing and industry in India was higher than in either East or West Pakistan.
However, while both East and West Pakistan were both underdeveloped in terms of industry East Pakistan was more agrarian than West Pakistan and the share of the secondary sector was even smaller in East Pakistan. The shares of the three sectors in India, West Pakistan and East Pakistan in 1950.
Faster industrial growth in west Pakistan
Subsequently the economic development of east and West Pakistan diverged for number of reasons. Most of the Muslim traders and merchants who migrated from Indian to Pakistan in 1947 took up residence in West Pakistan.
In addition the government of Pakistan was dominated by West Pakistan the West Pakistan and government assistance was biased toward industrialists in West Pakistan. The result wasthat industrial growth was much faster in West Pakistan compared to East Pakistan.
Consequently, although ther share of the secondary sector increased in East Pakistan, it remained behind West Pakistan interms of the degree of industrialization. We can see this by cmparign the sectoral composition of GNP in the two wings of Pakistan n 1970.
Growth of the industrial and service sector in Bangladesh
After independence, the growth of the secondary sector accelerated in Bangladesh, particularly in the 1980s. We can see this by looking at the changes in the pectoral composition of GDP in Bangladesh since independence in the following table.
In the last two decades, Bangladesh has been remarkably successful in the development of new manufacturing activities, especially the garments sector, processed foods, pharmaceuticals, cosmetics and processed foods.
The service sector has also expanded with the growth of telecommunications, transportation, and financial services. But the service sector is still dominated by low value-added services.
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