In 1901, the region which is now known to us as Bangladesh saw the generation of its first electricity generation when the nawab of Dhaka installed a private generator to switch on the first electric light. Since then, the pace with which economic modernisation has occurred within this landscape has differed vastly. For instance, between 1901 and 2008, installed capacity for power generation grew to 5,202 MW. Yet, between 2008 and 2018, our installed power generation capacity for has reached 16,048 MW. To put this exponential growth into perspective, while it took us more than 100 years to install our first 5,000 MW of power generation capacity, we have more than doubled it in the last decade alone.

This exponential growth in energy generation is also not a one-off statistic. Since 2008, the government of Bangladesh has pursued the goal of transforming Bangladesh into a middle-income country by its 50th anniversary in 2021. Towards that end, the government has brought about a paradigm shift in its policymaking process by committing to a wide array of mega infrastructure projects. Moreover, it is important to mention that never in our history had any government attempted to implement so many transformational projects during its tenure. Some of these projects include:

{i} Launching the Bangabandhu Satellite-1, the first Bangladeshi geostationary communications and broadcasting satellite

{ii} Construction of 6.15 km. long Padma Multipurpose Bridge

{iii} Construction of about 26 km. long Dhaka Elevated Expressway

{iv} Construction and expansion of a four-lane Dhaka-Chittagong Highway

{v} Completion of the LNG terminal project

{vi} The Payra Port Project

{vii} The Rooppur Nuclear Power Plant Project

{viii} Rampal Coal Power Project

{ix} Matarbari Coal Power Project.

Of course, there is a need to elaborate how such mega infrastructure plays into our economic story. In other words, what are the exact dividends of such mega infrastructure and how can we maximise these dividends to fuel the economic progress we aspire to attain?

To the common eye, the availability of infrastructure enables societal functions and economic efficiency so that citizens and economic agents can perform their desired activities without much disruption. Infrastructure is critical for attaining economic progress as it allows private agents to compete with each other and with external competitors. For instance, had Bangladesh did not overcome the energy crisis it faced in 2008, it is unlikely that our exports would have increased from $16 billion in 2009 to nearly $36 billion in 2018.

This is exactly why economic theory proposes that raising capital accumulation through increasing investments in public good such as infrastructure, health care and education is fundamental for increasing the per capita income of a country. It is, in fact, a widely held doctrine within development economists that if a nation is able to mobilise productive investments in physical and human capital, then it will lead to an increase in short term rate growth and a permanent rise in its income per capita. But, why am I using the term short-term growth? It is precisely because capital accumulation after a point will drive the marginal product of the capital to zero. Plainly speaking, if an individual has one mobile phone, then the value or the usefulness of the first mobile phone is very high. However, if he is irrational enough to buy 10 mobile phones, then the usefulness of the tenth mobile phone is likely to be nil. This is exactly why we rarely see any individual undertaking capital accumulation if it is deemed unnecessary in enhancing productivity.

And that is why economists argue that long-run growth is not shaped by capital accumulation alone but through technological progress. But how does technology fit into this story? The economic rationale for focusing on technological progress is very simple. Technological advancements allow societies to enhance its productivity for any given level of resources. That is, for any given level of physical and human capital, the overall output an economy will increase if technological improvements are engineered.

This is precisely the reason why in advanced industrialised nations, a large share of the growth comes from improvements in technology, and not from the accumulation of capital. But, what insights and implications does this have for Bangladesh? At its current stage of development, Bangladesh can both maintain a solid growth rate and aim to attain much higher per capita income by simply accumulating more productive human and physical capital. Yet, the overall development insights from industrialised and developing nations tell us that there is a scope for double dividends.

If Bangladesh is able to accumulate physical and human capital that are conducive for technological diffusion from industrialised nations, then not only are we enhancing our per capita income through capital accumulation, but we also creating conditions for enjoying high long-term growth. This is exactly what has been happening in China and Vietnam.

To get a hint of the big picture, the world’s income distribution and technological space can be segregated in three distinct groups. First, approximately 15 percent of the world population lives within countries that can be categorised as technological innovators. This includes the US, Japan, Germany and South Korea. The next 35 percent of the world population lives within countries that can be categorised as technology adopters. In other words, while these countries do not have the technological edge to significantly push forward the world technology frontier, they are nonetheless rapidly changing their economy and society by adopting technologies that are already in use in advanced nations. China is perhaps the best example. Lastly, 50 percent of the world population lives within nation states that are neither innovating nor adopting technology efficiently. And these nation states have witnessed the most volatility in their long-run economic performance. Examples from this category include Venezuela and Argentina.

Consequently, to maximise the dividends from its focus on mega infrastructure, policymakers should prioritise projects that can pragmatically facilitate technological diffusion in Bangladesh, which will allow entrepreneurs to become more effective technology adopters in our economy. This is possible when we prioritise projects that have the potential to facilitate the growth of our export sector and attracts foreign direct investment. Any other infrastructure projects, that do not have a direct or strong indirect implication for encouraging exports or FDI can be considered secondary in priority. FDI, in particular, has been seen as a natural vehicle through which new ideas and processes can cross borders. In Bangladesh, nonetheless, FDI accounts for less than 1 percent of GDP, while in Vietnam and Cambodia, it accounts for more than 6 percent and 9 percent of GDP respectively. This is precisely why there is a genuine scope to enhance the short and long-term returns from our mega infrastructures, provided we take on board some of the key insights from economic theory and cross-country development history.

Ashikur Rahmanis a senior economist at Policy Research Institute of Bangladesh.