You cannot simply use projects from Japan or China as models for Bangladesh. Given our country’s context in terms of the lack of availability of skilled workers in every level, technological standpoints and other facets related to weak institutions, the challenges in Bangladesh are numerous and different.
Dr. Selim Raihan is Professor at the Department of Economics, University of Dhaka and the Executive Director of the South Asian Network on Economic Modeling (SANEM). He has published the paper, ‘Estimating the impact of the Padma Bridge in Bangladesh’ with Dr. Bazlul Haque Khondker.
What are the most significant effects that will occur following the construction of the Padma Bridge on macroeconomic and microeconomic levels?
Construction of Padma Bridge is expected to generate welfare to the people of Bangladesh in general and the people of South West in particular. The benefits are expected to arise from the greater integration of regional markets within the Bangladeshi national economy. Moreover, given the interdependence of economic activities/sectors, the direct impacts of the Padma Bridge on individual sectors and factor markets are likely to induce a chain of changes in the rest of the sectors of the economy. Using an economy-wide multiplier model, our study finds that, the injection of $2.1 billion into the economy produces economy wide benefits in terms of value added of Tk 453,670 million ($6,481 million) over a period of 31 years. This would give an annualized growth rate of 0.33% of national base GDP. Using the Traffic model, road users benefit is found to be million Tk 1,295,840 ($18,512 million). Thus, the total project benefit is estimated to be Tk 1,749,510 million or $24,993 million. This implies that total project benefit is 39% relative to the base national income. Assuming the 31-year full realization time frame, total project benefit per year is then 1.26% relative to the base national income.
What do you think has been the greatest challenge in the construction of the bridge?
Initially the greatest challenges were the funding and the resources, both of which have been provided by our own national wealth. The challenge that the project is currently facing is management. A proper management of the entire project including the constructions and funds are absolutely necessary. The monetary amount of funding increases with time, therefore we must ensure that each task is completed within the allotted time in order to ensure that overspending does not occur.
Many innovative bridges such as the Akashi Kaikyo Bridge (Japan) have been constructed recently. Is there any international construction project that you think is a model of progress for Bangladesh?
You cannot simply use projects from Japan or China as models for Bangladesh. Given our country’s context in terms of the lack of availability of skilled workers in every level, technological standpoints and other facets related to weak institutions, the challenges in Bangladesh are numerous and different. Our overall infrastructure is very weak and we have inefficient port facilities. Road transportation is also underdeveloped and time consuming, which increase the overall costs of any project. Whereas, in both China and Japan, the overall infrastructure is much more efficient compared to Bangladesh. The managements of the projects are also more efficient in those countries. Take the example of the the Dhaka-Chittagong highway, which has been delayed for a significant amount of time. If we delay any large project like this, the cost is significantly increased and it creates a significant loss to the economy. The key factor is addressing and solving our own inefficiencies.
What propelled you to calculate the impact of the bridge?
I have seen my colleagues conducting a similar study when the construction of the Jamuna Bridge had started. We were approached by the Bangladesh Bridge Authority and World Bank because they wanted a very comprehensive research on what would be the impact of the project; they wanted a report that would not only detail the traffic model, but it would include the impact on numerous sectors that were interrelated to it. Our academic input is specialized in this particular field and we gladly accepted the proposal. It was uncertain whether such a vast project would actually provide benefit and using this research we could answer all of these questions.
When conducting your study, is there any particular reason that you employed the SAM method in your calculations?
Although, it is customary to use ‘traffic’ models to estimate the benefits of transport project (e.g. Padma Bridge), depending only on the traffic model may underestimate the full benefits of the project since such a model can only capture primary or direct benefits in the form of efficiency gains arising out of cost and time saved. The secondary benefits of a transportation project are also substantial. The secondary effects may be generated due to multi-sectorial productivity gains through structural changes occurring in the economy from improved productivity made possible by the bridge. The well-known models for capturing secondary benefits are SAM based fixed price and CGE models. Hence in addition to adopting the traffic model, both SAM based fixed price and CGE models are employed to estimate full benefits of the Padma Bridge project. In this context the full benefits would thus compose of efficiency gains of traffic model and the economy wide benefits of the SAM and CGE models. Because of its location in the South West region of Bangladesh, Padma Bridge is expected to have larger impacts on this regions compared to the other parts of Bangladesh. Therefore, a regional SAM model was also formulated to assess the impacts of Padma Bridge on the South West region of Bangladesh.
You have calculated simulations for multiple sectors that include agriculture, manufacturing, leather products, construction and labor. Of these simulations, which particular sector would you say is most unpredictable? Why?
The manufacturing sector is the most unpredictable because it is extremely undeveloped in the Southeast. We predict an increase in their production because of reduction in transportation cost and a rise in demand for those products in the Southeast. Nevertheless, gas and electricity are also major provisions in this scenario and our calculations factored that these provisions are amply provided.However, these changes are not of the projects full potential due to lack of electricity, gas and other infrastructure. Unless and until these provisions are provided, the potentials that we have calculated in our study will not materialize. The Padma Bridge is a gateway for economic gain. In order to manifest these gains there has to be subsidiary interventions.
Are there any similar future projects that you believe will also provide a significant economic impact for Bangladesh?
The government’s initiations to create economic zones willcreate definitive progression. The future projects should look into solving sector specific infrastructure and integrating with the broad general infrastructure. I have written extensively about the concept of ‘entitlement failure’ in infrastructure, where there are large projects with sufficient supplies of infrastructure but many growth-enhancing sectors may fail to have proper access to those infrastructure. One such example is the leather industry in Bangladesh which accounts for around one billion US$ in exports and which has immense potentials in generating employment and growth by increasing export of higher value added products. However, this sector has not yet reached its full potential primarily due to operating constraints stemming from its production base in Hazaribagh of Dhaka city where there are minimal waste management systems and inadequate industrial layout planning. The Hazaribagh-centric tannery industry is now legally bound to relocate all the factories to a new environmentally compliant tannery estate (under construction) on the outskirts of Dhaka city. Nonetheless, such relocation has been stuck for many years with unresolved decisions on cost sharing of various components of the new industrial estate. Yet, there is no denying the fact that unless this relocation is effectively done, the leather sector will continue to suffer from ‘entitlement failure’ despite significant improvements in broad general infrastructure.Think of it like the traffic problem in Dhaka; the creation of only expressways and highways will not solve the problem unless the smaller roads and connections themselves are not fixed.
Are there any other projects both within and outside urban areas that you think would be beneficial to the overall economy of the nation?
The government’s initiation to create special economic zones would be very relevant. The idea is to create pockets of efficiency in an environment of inefficiency in the overall economic system. Nevertheless, there are concerns regarding this matter. In a country like Bangladesh, you cannot develop the infrastructure of the whole country in a short span of time because there aren’t sufficient resources and there are inefficient systems. When the government starts this project, it must look at the experiences of other countries and a number of issues related to the proper management of these economic zones. For example, India has created more than 500 economic zones but they haven’t brought expected gains. On the other hand, China has thrived with the implementation of this idea. China has been successful for a number of reasons. They have developed these zones with consideration of the accessibility and distance to ports, developing the infrastructure that connects the zone with the port and the capacity of the port, and also executing better efficient management system. You need to have very efficient connections between these zones and air, land and seaports. You also need skilled and educated managerial staff to utilize the most modern methods to effectively oversee these transactions. We need to consider and follow the models of success as well as develop our own when we create these zones.
Are there any international construction projects that you see as a model of progress for Bangladesh to follow?
Under the Asian Development Bank’s South Asia Subregional Economic Cooperation (SASEC) project, which is a large-scale project involving six countries in South Asia involving Bangladesh, there are plans to construct several economic corridors to facilitate intra-regional trade in South Asia. With the development of these corridors, industrial bases in these countries can be expanded.
A Structure of Significance
In their research paper, ‘Estimating the Economic Impacts of Padma Bridge in Bangladesh’, Dr. Selim Raihan and Dr. Bazlul Haque Khondker comprehensively calculate the economic influence that the Padma Bridge will have on the economy of Bangladesh.
The Padma Bridge in Number
On January 6th, the Executive Committee of National Economics Council (ECNEC) approved of the third revision of the Padma Bridge Multiproject (PBM). The planning minister, AHM Mustafa Kamal, announced the approval of a total of 10 projects with the project cost of Tk. 30,292.54 crore. This is a result of additional projects and the increase of labor and materials with the progression of time. The project cost was initially Tk. 10,161.75 crore, when it was approved in 2007. Upon the inclusion of the rail track, it was revised in 2011, with the total cost increasing to Tk. 20,507.20 crore.
A Micro Prospective of Dr. Selim Raihan
One economic analysis you wish to be a part of.
Analysis of micro level economic and political institutions and their role in inclusive growth.
A quote from an economist that your admire.
“If economics were only about profit maximization, it would be just another name for business administration. It is a social discipline, and society has other means of cost accounting besides market prices.”
― Professor Dani Rodrik, Harvard Kennedy School, Harvard University
From his book “The Globalization Paradox: Democracy and the Future of the World Economy”, published in 2011
The most significant economic study conducted in the past 10 years.
There are two economic studies I would like to mention. The first one is about the relation between trade patterns and location of economic activity, for which Paul Krugman was awarded the Noble Prize in 2008. The second one is the analysis of consumption, poverty, and welfare, for which Angus Deaton was awarded the Noble Prize in 2015.
A rudiment that you teach in your class.
You have to have a passion for learning economics. You can’t be an ‘economist’ just simply by graduating in economics. Learning economics is essential for understanding the real world surrounding you, even if you don’t become an economist at the end.
Essential book to understand economics.
“Principles of Economics”, by N. Gregory Mankiw, “Economics Rules: The Rights and Wrongs of the Dismal Science” by Dani Rodrik
SAM- Social Accounting Matrix
SAM is a commonly used to tool to calculate economic transactions that occur in a certain nation or region. It can be implemented for descriptive analyses or predictive analyses.
Descriptive analyses observe the internal workings of a particular region in order to understand the strengths and the income sources of the residence. It takes into account economic factors such as exports as well as non-economic factors such as environmental traits and transport faculties, which factor into the region’s economic base.
Predictive analyses forecast the future determents or benefits from any economic project or entity. It can be used to make inferences regarding any economic changes will be made from the respective project or investment to deem whether is will me profitable in various divisions.
Bridging the History of Economic Theory
The Social Account Matrix (SAM) has revolutionized the methodology of calculating economic interdependence. These economist have paved the way for this calculative analysis to be applied for a number of analysis.
The economy-wide circular flow of income
