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ROLE OF FINANCIAL SECTOR DEVELOPMENT ON ECONOMIC GROWTH:ECONOMETRIC EVIDENCE OF SOUTH ASIA
Rudra Prasad Ghimire, Ph.D. Scholar, Tribhuvan University
Abstract:- The aim of the study was to diagnose the role of financial sector development such as Gross Fixed Capital Formation, Broad Money, Domestic Credit to Private Sector, Market Capitalization, Trade Openness and Foreign Direct Investment, on the economic growth, proxy by Real Gross Domestic Product per Capita of South Asian countries like Pakistan, Bangladesh, Nepal, India, Bhutan and Sri Lanka by taking panel data for the years1980/81-2015/16. Stationarity was checked by applying unit root tests. In this investigation, Auto-Regressive Distributed Lag (ARDL) Estimates (Co-integration Test and error correction modeling) was carried out to test for valid long- and short-run relationships between the variables. The results of panel unit root test opened the way to apply Pooled Mean (PM) model. The study used three estimation techniques such as Hauseman test/Pooled Mean (PM), The Mean and Fixed Effect (FE).. The results of PM model estimation show long-run and short-run influence of independent variables on the dependent variable. Pannel data from “World Development Indicators” for the period was considered. The long-run results of hauseman test shows significance of all independent variables, although short-run resulted insignificance of all independent variables excluding FDI. The results are steady with its literature. On the basis of this operation, this study focuses that there should be trade integration and openness by financial sector development among South Asian countries as trade surplus has a positive influence to get consistent economic growth.
Keywords:- South Asia, Financial Sectors, Economic Growth.
1. BACKGROUND
The South Asian Association for Regional Cooperation (SAARC), established in 1985, aimed to work together towards finding solutions of its member countries’
common problems through economic growth by uplifting the regional economic activities in common platform of the people of South Asian Countries. South Asia is a common plate of eight countries (Afghanistan, Bangladesh, Bhutan, India Nepal, Pakistan, Sri Lanka and Maldives), encompassing similar language, culture, religion, socio-economic status, and geopolitical features.
Mostly, socio-economic and financial indicators of the region possess a remaining part for development. That can be put into perspective through the lens of the South-eastern neighboring countries of South Asia: Japan, Korea, Taiwan, and Hong Kong have been achieving remarkable economic growth because of high level of intra-regional integration. Comparatively, such type of intra-regional integration didn’t function in the same way in South Asia despite having similar socio-economic and geo- political features of South East Asian nations.
Likewise, another rich country China has been achieving targeted economic growth and development in the world. So the essence of the clarification of SAARC’s role is to uplift the quality of life of the people in this region. In recent times, South Asia can be observed as a highly potential growing region in the world despite having dense cross-cutting issues. Therefore, the existence of SAARC has-been one definite and high crux to put regional endeavor to reduce poverty, inequality, and raise the quality of life of the people in South Asian Region (plate) for sustainable development.
However, regional level conflict and confrontations are the critical issue for the cooperation to secure stable region as a common platform. It has been seen that the regional strength has been paralyzed to achieve the sustainable development goals due to political instability, corruption, lack of good governance and knowhow. For this matter, political commitment is a must for the prosperous regional future. These days south plate has created investment opportunities to reduce the financial constraints.
Peer Reviewed And Refereed Journal Going through the history of the
development, however, it can be seen that there was (and still exists to a large extent) inadequate development in terms of education, basic health, rural energy, rural banking, and financial intermediation. Financing to manage all issues is another challenge and an important part of south Asia. Injustice in South Asia seems with the poor.
Governance is unjust, and there is inequitable access of human development, market, and productive resources.
Rural areas are more backward than urban areas. Rural people are not benefiting from globalization. Urban people are getting opportunity to unfold as per the dynamics of economic activities. Rural people are not benefiting from the technology and education. Poor health and nutrition account for less productivity. Healthy life is insecure and vulnerable in South Asian people. They have lack of competitive strength and capacity to compete in the growing market places.
Participation of Small and Medium Enterprises (SMEs) at an integrated form is a must to raise trade capacity and smooth supply. But SMEs still don’t have the full access of finance, infrastructure, and skill development to be able to create business opportunities and export market. Connectivity is another means to speed up the pace of regional integration process of SAARC. But bilateral and sub- regional levels touch, which can strengthen SAARC countries connectivity, is yet to materialize to its fullest.
Common protocol, transmission network, taxes system operation and system imbalances, harmonization of code and dispute settlement distribution channel are emerging issues in south Asia that are required to unfold into opportunities. This plate lacks peace, security, justice, and human rights to stop rampant corruption.
There is not enough schooling of accountability to spread positive perception towards bilateral problem solving endeavor regarding balance between pieces, security, rights, and avoiding extremism. Infrastructure development is one of the most important development means through which
employment opportunity can be generated. However, development resources are insufficient in South Asia.
First of all, the supply-leading group which argues that well developed financial system plays an important role in increasing productivity and economic growth (Goldsmith, 1969; McKinnon, 1973; Choe and Moosa, 1999; Levine et al., 2000; Bittencourt, 2012). Secondly, the demand-following hypothesis established by the studies of Dematriades and Hussain (1996); Liang and Teng (2006); Zang and Kim (2007) and Odhiambo (2008) who argues that when the real output of the economy goes up, it requires greater amount of financial services.
Thus, a growing economy will demand a financial system which is larger and more efficient. The third school of thought shows a bi-directional relationship between financial development and economic growth. This bi-directional idea has been established from the findings of the following researchers Wood (1993); Akinboade (1998); Luintel and Khan (1999) and Apergiset al. (2007). Lastly, Lucas (1988) and Deidda and Fatouh (2002). According to Bjork (1999) to eliminate the distorting effects of inflation, growth is often measured in real terms which mean real increase in production of outputs in an economy.
In earlier theories, Hicks (1940) and Samuelson (1950) argued that increasing per capita income is indicative of the potentiality of a nation to achieve future economic welfare. So, they suggested that rising per capita income is a good measure of economic growth. On the other, hand Kuznets (1949) suggested that economic growth is the contribution of different economic activities to accomplish higher status of human welfare and economic growth is a quantitative concept.
Again, Kuznets (1968) also stated that sustained increase in population and product per capita can be defined as measurements of economic growth. On a similar note Lucas (1988) commented that economist often overstate the importance of financial system on economic growth.
Shan et al. (2001) supported Lucas’s view by pointing out on the economic
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performance of some Asian economies(like China) who have achieved remarkable economic growth with a repressive and weak financial system.
Again, Deidda and Fatouh (2002) using a threshold regression model found nonlinear relationship between financial development and economic growth.
Furthermore, İnce (2011) used data from 1980 to 2010 for Turkey to measure the relationship between economic growth and financial development with co integration and causality test. The research concluded that there was no long term relationship between economic growth and financial development.
Greenwood and Jovanovic (1990) analyzed the relationship between finance and economic growth and their study concluded that an improved system of financial intermediation is able to allocate more capital to efficient and profitable investment and higher investment cultivates higher economic output.
Similarly, Bencivenga and Smith (1991) emphasized on the fact that well established financial intermediaries reduces risk and increases productivity.
Christopoulos and Tsionas (2004) investigated the long run relationship between financial depth and economic growth, using panel unit root and co integration analysis for ten developing countries. The empirical results provided a clear support for the hypothesis that there is a single equilibrium relation between financial depth and growth which means the co integrating relationship is unidirectional from financial depth to growth.
On the contrary, Luintel and Khan (1999) found a bi-directional relationship between the financial development and economic growth by using data from ten least developed countries and Al-Yousif (2002) in his research, which was based on 30 developing countries, concluded that the bi-directional relationship between finance lead economic growths cannot be generalized across countries.
Chen (2002) used data from 1952 to 1999 for the Chinese economy to conduct a co integration test and Bayesian vector analysis test.
The aim of the study was to examine the causal relationship between interest rate, savings and national
income. His analysis concluded that interest rate liberalization and sound financial intermediation can help to establish sustainable economic growth.
Again, Ansari (2002) analyzed the relationship between national income and financial development and money supply for Malaysian economy and the results showed that financial market development has positive impact on income growth.
From the perspective of South Asia, Ray (2013) used granger causality test for India to explore the relationship between financial development and economic growth for the period of 1990- 91 to 2010-11. The study concluded that financial development in India plays strong role in the growth process. On the other hand, Singh (2008) conducted a time series analysis for Indian economy with data from the period of 1951 to 1996.
The results showed only one way causality between financial development and economic growth of India. In like manner, Mercan and Ismet (2013) looked at the effects of financial development on economic growth for five emerging markets (Brazil, Russia, India, China &
Turkey) applying panel data analysis for the period from 1989-2010 and the study concluded that the effect of financial development on economic growth was positive and statistically significant.
In the cases of the developed economies, Schich and Pelgrin (2002) have found significant relationship between financial development and higher levels of investment for nineteen OECD countries. Furthermore, Caporaleet al.
(2009) examined the relationship between financial development and economic growth for ten new EU countries by estimating a dynamic panel model. The Granger causality test of the study indicated that causality runs from financial development to economic growth, but not the opposite direction.
In contrast, Arestiset al. (2001) explained in their research that financial development is a multifaceted process.
According to them there are empirical evidences that found no relationship between financial development and economic growth. As Cargill and Parker (2001) have discussed in their study the
Peer Reviewed And Refereed Journal dangers and consequences of too much
financial liberalization form the experiences of Japan’s economy.
Some researchers focused their study of financial development and economic growth from the context of individual countries separately with country specific data. Hasan et al. (2009) used panel data from Chinese provinces to study the impact of financial and legal institutions on economic growth rates.
The evidence from the study suggests that improvement of financial market; legal environment and political pluralism have strong association with economic growth of China.
In another study with Chinese economy (Zhang et al., 2012) collected data from 286 cities of China for the period of 2001-2006 to examine the relationship between financial development and economic growth at the city level in China. The study used cross- sectional regression, first-difference and GMM estimation for the panel data to establish that financial development and economic growth in the cities of China are positively related.
Similarly, Yang and Yi (2008) investigated the causal relationship between financial development and economic growth for Korea and established unidirectional relationship between the two variables. Again, Masih et al. (2009) used data from Saudi Arabia to analyze the causality between financial development and economic growth with long run structural modeling. They also found unidirectional relationship between the two variables.
The authors concluded that the course of causation between financial development and economic growth is supply- leading rather than demand following. For example, Hassan et al.
(2011) performed short run multivariate analysis and long run causality test with panel data for low and middle income countries which are classified by regions.
The result shows two different scenarios for poorest and noon poorest regions. Like two way causal relationships between financial development and economic growth for most regions and one way causality from growth to financial expansion for poorest regions.
Again, Giuliano and Ruiz-Arranz (2009) used another important variable to the arguments for hundred developing countries. They used constructive data to understand the correlation between remittance, financial development and economic growth. The results of the study shows that although financial development is important for economic growth but if the financial sector of the country does not function efficiently remittance money can play as an alternative source for investment.
With pressure of urbanization the demands for mobilizing finance at the sub- national level has increased considerably (CLGF,2011). Central governments often show reluctance to allow strong revenue powers to the local and regional governments, which make them remain dependent on central transfers that flawed in design and implementation (GTLRG, 2016).
Development financing requirement is expected to increase in the future in the South Asian countries as many basic dimensions of development remain underdressed.
Domestic resources are not simply inadequate, even though the mounting pressure of infrastructure development would certainly need additional financial resources. Like the federal government in the centre, the role of sub-national governments in development is equally important. Along with public resources, the development entities should be encouraged to approach capital market for diversification of financial options.
Besides orthodox bank – landing, several other financing instruments including PPP, microfinance, inclusive finance, impact investment, long-term bonds in local currencies and others should be explored by the south Asian countries (Dash, 2017). With this background, no researches have been conducted regarding the relationship between financial sectors development and economic growth in South Asian countries.
The attempt of this study is to fill the financial gap and to understand the relationship of financial development economic growth and sustainable development for developing countries of South Asia.
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2. MODEL USE AND VARIABLESThis study uses the Auto Regressive Distributed Lag model, where the assessments are supported by three different estimators, namely Pooled Mean (PM), The Mean (M), and The Fixed Effect (FE) Model to observe the relationship of financial sector development on economic growth. Having some problem in cross section data best estimator is selected on the basis of Hausman test.
STATA and EVIEWS software’s are used for analysis. And Real GDP per Capita Gross (removing inflation and dividing by GDP deflator, annual gross ratio as a representative of investment Fixed Capital Formation % of GDP, Annual Broad Money ratio % of GDP, Annual credit ratio of private sector/Domestic Credit to Private Sector as a % of GDP, Annual Market Capitalization as representative stock market of % of GDP, Trade Openness % of GDP, Foreign Direct Investment as a % GDP.
One of the major shortcomings while analyzing Macro-economic variables is that they seems very often trending, as they have a tendency to systematically increase or decrease over time (Banergee, et al., 2007). Difference stationary and
trend stationary models of the same time series may imply very different predictions (Diebold and Senhadji, 1996).
So, rather than employing one or the other model by default, one may use a unit root test as a diagnostic tool to guide the decision. In fact, one of the early motivations for unit root tests was precisely to help determine whether to use forecasting models in differences or levels in particular applications (Dickey, Bell, and Miller, 1986).
Since there is obvious evidence that structural macroeconomic time series variables are non-stationary in nature, as consequences, the ordinary least squares (OLS) regressions using these data might produce spurious results. Therefore, to check the stationarity properties of the variables, the most widely used Dickey Fuller (DF) Augmented Dickey-Fuller (ADF) tests and the newly formulated Phillips-Perron (PP) test have been employed in this study.
For this the following hypothesis has been set.
H0: The variable under the test is non-stationary against stationary
H1: The variable under the test is stationary
To test the DF, the following equation has been used.
t t
t Z T e
Z
(
1) 1
……… (i)The relevant test involves testing the null hypothesis of (ρ-1) = 0 (i.e. the Zt is non- stationary) against the alternative of (ρ-1)<0 (i.e. Zt is stationary). The t-test on the estimated coefficient of Zt-1 provides the Dickey-Fuller test. If its absolute value exceeds the critical value at the chosen level of significance provided by Dickey and Fuller (1981), the null hypothesis of non-stationarity is rejected and the series is considered I(0). The Augmented Dickey-Fuller test, on the other hand, is a modification of the DF test and lagged values of the depended variables are added in the estimation of equation as:
t t t
t Z T Z e
Z
(
1) 1
1 ... (ii)The t-ratio on (ρ-1) provides the ADF statistics. This test is carried out to ensure that the error process in the estimating equation is residually uncorrelated (Razzaque, Ahmed 2000).
Since it is widely believed that both DF and ADF tests do not consider the cases of heteroscedasticity and non-normality frequently revealed in raw data of economic time series variables, the PP test for unit root has been used in the empirical analysis as:.
t i t t
t
T Z e
t Z
Z
1)
3( 2 )
1
(
... (iii)The appropriate critical values of the t- statistic for the null hypothesis of non- stationarity are given by MacKinnon (1991). After employing the unit root test,
econometric analysis has been carried out following Auto-Regressive Distributed Lag (ARDL) Estimates (Johansen Co- integration Test and error correction
Peer Reviewed And Refereed Journal modeling) to test for valid long run and
short run relationships between the variables. For this purpose, the ARDL bounds testing approach has been applied to estimate equation and by ordinary least squares (OLS) in order to test for the existence of the long-run relationship among the variables by conducting an F-test for the joint significance of the coefficients of the lagged levels of the variables i.e., the null
hypothesis against
the alternative hypothesis . It shows that the both short run and long run relationship between the variable.
3. DATA AND METHODOLOGY
The study employed panel data of World Development Indicators (WDI) for the period of 1980-2015/16 of six South Asian countries, which comprises Pakistan, India, Bangladesh, Bhutan, Sri
Lanka and Nepal. The study used secondary source of data made available by the World Bank. The study has taken six independent variables and one dependent variable. The independent variables are the pointers of financial development while the dependent variable is a proxy for economic growth.
3.1 Data Analysis and Presentation Good governance, rampant corruption, and transparency are the major concern to reduce wide spread poverty of South Asia. Nonetheless, countries have the high potentiality to fight against poverty, unemployment, and deprivation. In order to achieve the high rate of economic growth, it is important to upgrade the welfare of the people and build effective, accountable and inclusive public institutions. Inclusive growth depends upon creating better opportunities for education and infrastructure.
Table 1: Industry value add (% of GDP) Country/Year 2000 2010 2016
Bangladesh 23.314 26.144 28.766
Bhutan 35.991 44.588 43.463
India 31.044 32.424 28.845
Maldives 15.037 10.168 11.232
Nepal 22.132 15.634 14.76
Pakistan 23.326 20.575 19.363
Sri Lanka 27.318 29.678 29.592
Afghanistan NA NA NA
Source: World Bank, 2016
Industry value added growth of South Asian countries needs to improve by developing industrial infrastructure and market access as well. For a long time, the countries of South Asian region experienced economic stagnation which also manifested in low GDP contribution from industries. This was mainly due to the import-substitution policy adopted by the government.
South Asian countries should begin redirecting their economic systems to adopt economic liberalization and open-door policies. Furthermore, both real and nominal openness has raised the industrial productivity output in the
SAARC countries. Hence, Industrial productivity, investment, human resource, education and training need to be addressed by the government, national and international partners, and private sectors proactively.
Still, industries are not well functioning as it doesn’t have large scale productive capacity of SAARC countries.
It needs bilateral and multilateral integration among the countries. Policies of trade liberalization, no proper implementation of SAFTA for intra- regional trade have been problems to enhance trade and to attract bilateral and multilateral trade and investment.
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Table 2 Development GAP in south AsiaCountries
Access of electricity
% of
population 2014
Account at a financial instution % of age 15+
(2014)
Commercial Bank
Branches per 100,000 adults 2015
Government expenditure on education
% of GDP 2015
Health expenditure
% of GDP 2014
Afghanistan 89.5 10 2.3 3.3 8.2
Bangladesh 62.4 29.1 8.4 1.9 2.8
Bhutan 100 33.7 15.4 7.4 3.6
India 79.2 52.8 13.5 3.8 4.7
Maldives 100 12.1 5.2 13.7
Nepal 84.9 33.8 8.9 3.7 5.8
Pakistan 97.5 8.7 10 2.6 2.6
Sri Lanka 92.2 82.7 18.6 2.2 3.5
Source: WDI, 2016
The South Asian people are living in a room of poverty, inequality, and unemployment. The realization of South Asian countries at current time is lack of financial resources as well as inefficient financial intermediation. Planned allocation of resources is an important task for the days to come. Besides, planned allocation of resources has not been meeting the targeted goals due to lack of policy implementation.
In South Asia, there is a high gap of financial development. Actually, financial development is synonymous to the overall development of the region.
Financial resource mobilization plays vital role to the implementation of developmental agenda of sustainable development. South Asian plate should fulfill the development gaps addressing the needs of investment expenditure on education, health, trade and business, and bank and financial institutions within themselves and all nations that are witnessing as well.
It is also important to consider the role of India in South Asia. The map of South Asia shows that only India shares common land with four countries- Pakistan, Nepal, Bangladesh, and Bhutan- and has close proximity to the two island nations-Srilanka and Maldives.
The six other nations of South Asia are located far apart from one another. Thus, India’s central position in South Asia hands it a crucial role as its relations with
smaller countries in the region affect their socio-economic and development activities.
The industries’ future depends upon mobilization of available resources, use of modern technology, rising productivity of labor, extension of market access, and trading system. The capacity of demographic dividend can enjoy the business with supernormal profit from small, medium, and large-scale industries by investing in several areas of entrepreneurship. They can provide education and training for youth. Intra- government negotiation is a must to create the business environment for the bright regional future. South Asia needs quantum of trade development and investment activities at a desired level.
Partnership for shared growth should get importance in South Asia.As per the country wise averages of South Asian plate; Bhutan has the highest industrial productivity and investment due to the energy development. Similarly, Srilanka remains at the top when it comes to human resource, and education and training. India is second as far as human resource, and education and training are concerned. Nepal has low industrial productivity. Pakistan has low investment and equal averages in human resources. Similarly, Nepal, in average, is low in education and training.
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Table 3 Public Resources in South Asia
Countries
Cash surplus deficit%
of GDP
Tax revenue%
of GDP
Total reserves including gold billion USD
Short term debt % of total debt
Other
taxes% of revenue
Afghanistan -0.6 7.5 7 8.6 0.5
Bangladesh 8.7 27.5 11.9 3.1
Bhutan 9.2 1.1 0.5 0.1
India -3.8 10.8 353.3 18.5 0.1
Maldives 13.7 0.6 14.5 4.1
Nepal -0.6 13.9 8.1 8.3 2.3
Pakistan -8 10.1 20 8.9 2.8
Sri lanka -5.3 10.4 7.3 17 2.6
Source: WDI, 2016
South Asia has been focusing to improve the state of problematic factors in business which includes government instability, corruption, poor implementation of policies, inefficient role of labor union, inadequate infrastructure, governance and transparency, poor work ethics in bureaucracy, inflation, crime and theft, lack of skilled work force, etc.
Besides, some areas have also been hindering to promote business climate in South Asian Region. Some areas of doing business, measured through the following indicators, clearly indicate the
performance achieved during the period of 2010 to 2016.
South Asia is facing the problem of poverty, unemployment, and inequality.
Educated people are leaving the country to be further educated and employed.
South Asia has dense youth population.
If they do hardships in their own locality, then they can build South Asia into a wonderful plate. Ultimately, this region has to be secured through cash surplus in bank and financial institution, tax revenue with government, total reserves of gold, short-term debt and other tax and revenues.
Table 4: Value add Annual % Growth of Industry Country/Year 2000 2010 2016
Bangladesh 6.256 7.032 11.094
Bhutan 7.257 12.481 6.787
India 6.032 7.551 5.592
Maldives -3.339 7.311 15.091
Nepal 8.207 4 -6.337
Pakistan 1.272 3.424 5.797
Sri Lanka 7.227 8.444 6.694
Afghanistan NA NA NA
Source: World Bank, 2016
4. RESULT AND DISCUSSION
The result of ADF test is taken to check the stationarity of the data. All variables are stationary at first difference except Gross Domestic Product (GDP) and Foreign Direct Investment (FDI) as per being stationary at level. Pooled Mean estimation was done in the long-run and short-run respectively. In the long-run, all the independent variables have significant
influence on the dependent variable because of having p-value less than 0.05.
While in the short-run, none of the independent variables put influence on the dependent variable except FDI, as of having a negative effect on GDP.
Furthermore, in the long-run, Domestic Credit to Private Sector (DCPS) shows influence in the way of economic growth as of having a negative influence on GDP.
In addition, the coefficient value and the
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negative sign of the error correction term(coefficient of EC, that is -0.8466) shows the power of convergence of the variables towards equilibrium in the long-run, which is also significant.
The study has examined mean estimation in the long-run and short-run respectively. In the long-run, none of the independent variables, except Domestic Credit to Private Sector, have significant influence on the dependent variable because of having p-value more than 0.05. While in the short-run, none of the independent variables exerts influence on the dependent variable. In this estimation technique, FDI is also proved to be insignificant in the short-run as opposed to the result generated by the Pooled Mean model.
5. CONCLUSION AND THE WAY FORWARD
The aim of the study was to diagnose the role of financial sector development such as Gross Fixed Capital Formation, Broad Money, Domestic Credit to Private Sector, Market Capitalization, Trade Openness and Foreign Direct Investment, on the economic growth, proxy by Real GDP per Capita of South Asian countries like Pakistan, Bangladesh, Nepal, India, Bhutan and Sri Lanka by taking panel data for the years1980-2015/16.
Stationarity was checked by applying unit root tests. GDP and FDI were stationary at level while the rest of the variables were stationary at first difference. The results of panel unit root test provide way to apply Pooled Mean (PM) model. The study applied three estimation techniques, namely Pooled Mean (PM), The Mean and Fixed Effect (FE). PM model of estimation was taken as the finest estimation model for this study.
The results of PM model estimation show long-run and short-run influence of independent variables on the dependent variable.
In the long-run, all the sectors of financial development have significant influence on the economic growth real GDP per capita. Moreover, domestic credit to the private sector is a barrier in economic growth in the long-run because of having a negative sign with the coefficient. On the other hand, in the short-run, none of the sector of financial
development has a significant effect on the economic growth of the given countries except of FDI. Nevertheless FDI has negative significant on GDP in the short-run.
And the coefficient value and the negative sign of the error correction term show the power of convergence of the variables in the equilibrium of long-run, which is also significant. In south Asia, average rate of inflation is very high in Nepal, Srilanka, and Pakistan. Therefore, most of the developing countries are the rooms for improvement in human resource development, institution,
infrastructure, industry,
entrepreneurship and trade sector for a sustainable development. South Asian countries need to focus in education, trainings, and skill development of labor in order to increase labor productivity and efficiency.
In south Asia, there are few skilled human resources in industrial sector and large number of semi and low skilled human resources working in the industry of South Asia with low performance. It is necessary to increase the efficiency of labor to realize higher level of productivity. South Asia should be market driven at an integrated form. Hence, steady restructuring of economies has a big role in market’s integration and expansion.
Development of energy is another important way for resource sharing to promote sustainable growth. Vision of co- existence prepares greater benefits for all nations to boost largest market in the region. Also; South Asia has a rapidly expanding middle class with substantial purchasing power. The SAARC nations have to capitalize on the growing market share of the Western countries, especially in commodities like carpet, ready-made garment, tea, cotton, leather, marine products, processed foods, gems and jewelry, computer software, agri-products, and the like.
Hence, all south Asian countries should increase manufacturing capacity by allocating the available resources, building infrastructure, formulating sound industrial and trade policies and implementing them. Ownership should also be broadening in South Asia.
Investor’s connectivity, Business
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solidarity, and stable political connectivity should be enhanced. For the transformation of the South Asian economy, agendas like climate change adaptation, capacity building, technology use, inclusive and sustainable economic growth should get focus in master plan and policy.
Government of all countries should manage public resources like cash surplus, tax revenue, total reserve of gold, short term debt, agricultural subsidies, aid for trade, and other incentives and taxes. All qualities of products and means should be harnessed. Development of finance, rising productivity, and reduction of trade deficit, trade openness, tax free trade, high foreign direct investment are crucial to build the future in South Asia.
Proper utilization of fund brings the better performance of Public Private Partnership approach. Capital market diversification, micro finance, bank landing, and long term bonds should also be expanded. This is the era of privatization and globalization. So south Asia should have collective and integrated rule of government to lead and succeed.
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