Question

Suppose that the returns to education in terms of income are higher in India than in Bangladesh. Suppose further that there are no barriers to migration. Describe how India's economy would change in terms of growth and wages.

Answer 1

Answer:

Generally, GDP means Gross Domestic Product and it is based on the total value of economic output of a country and it reflects the growth of the economy. When the GDP increases, it signifies the country economy is growing. GDP depends on the population as more engage in works, greater will be the outcome in income earned by each person in the country, when the education level is great with the more population as like in India, possibility is there to generate increase in the per capita income earned by Indians comparing Bangladeshis as it has comparatively lower population. GNI (Gross national income) varies from GDP because GNI is calculated by the Per Capita Income as divided by the countries' population. In this scenario there is possibility to the country like Bangladesh to generate more of income in future as its per capita income is increasing faster than India. India has the highest GDP and has a larger population as compared to Bangladesh. Larger the population, it drags down the GDP too much low. But when the GDP is large like India it is better than Bangladesh. The lower birth rates give raise in income equality by decreasing unemployment and increasing per capita expenditure. So higher the income it gives to the standard of living of the people leading the possibility to reduction in population and urbanization, which raise the situation of migration for the better living and to earn more.

Generally, the migrants to urban areas make decisions to migrate on wages and the probability based on employment. The factor of supply and demand like population growth, rural-urban migration and industrial output respectively result in affecting both the supply and demand sides. Hence, leading both rural-urban migration and the rapid population growth may lead to unemployment problems in the future. Actually the labor market is more complex, if migrants consider the probability of obtaining employment in the urban sector, there is possibility of lifetime earnings differential as factors depend on the demand and supply factors of the labor market in the country. In current scenario, India's GDP is 5.6 % which is relatively lower than of Bangladesh's GDP of 12.9% which is twice more than India. It is estimated that India’s average growth rate will grow slower by 1 or 2% due to the population comparing to other Asian countries which will result in increase of Bangladesh per capita income will be thrice increased from the India's per capita income by 2020. In this situation if there are no barriers for migration, then there is much possibility that Indian's will migrate to other countries for betterment of living and to gain more of the income, if such situation rises there is possibility of increase in GNI (gross national income) as inflow of income will be more giving chances to employment to all, as the factors of supply and demand will be in equilibrium by the better national policies could be focused which leads to increase in per capita income, betterment of social life of people like standard of living, improvement in health and education. Inflation will remain high and hidden revenues, black money etc will be brought into account by proper system management resulting in reinvestment so that government could impose higher tax and could make honest and developmental spending.