Development

In the following report, I would be showing a comparison between the economies of Pakistan and Norway and I would be highlighting a few key factors that have led to these differences.

Geography and Demographics

Norway

Norway is a sovereign and unitary monarchy in east Europe. It has a total area of 385,252 square kilometers (148,747 sq. mi) and a population of around 5 million people. It shares a border with Sweden, Finland and Russia and has a huge coastline facing the North Atlantic Sea.

Most of Norway has a really high altitude and much of the country is dominated by mountainous or high terrain, with a great variety of natural features caused by prehistoric glaciers and varied topography. Stunning and dramatic scenery and landscape is found throughout Norway. The west coast of southern Norway and the coast of northern Norway present some of the most visually impressive coastal sceneries in the world making Norway one of the most popular tourist attractions in the world.

The climate in Norway is a bit diverse. The northern regions have really harsh winters while the coastal areas have a comparatively milder climate.

Pakistan

Pakistan is a sovereign country in South Asia. With a population exceeding 199 million people, it is the sixth most populous country and with an area covering 796,095 km2 (307,374 sq. mi). It shares a border with India, Iran, Afghanistan and China and also has huge coastline towards the south opening into Arabian Sea.         

The geography and climate of Pakistan are extremely diverse. It is a mixture of high altitude and harsh climate in the North where the land is dominated by rocks and ravines while in the West the climate is milder in comparison with four distinct seasons and arable land coupled with a system of five major rivers.

Pakistan too has a lot of natural features and impressive sceneries but tourism has declined due to the law and order situation and the lack of key facilities in the top tourist spots.

Traditional Economic Indicators

Traditionally, nominal and real GDP was used as the primary indicator for comparing the economies of differentcountries.  

Norway: High income: OECD

GDP (current US$)

$500.1 billion

GDP rank

23rd

Population, total

5.136 million 

Pakistan: Lower middle income

GDP (current US$)

$246.9 billion 

GDP rank

41st

Population, total

185.0 million 

It would be very unfair to compare both of these countries on the basis of nominal GDP or even real and GDP adjusted for PPP. This is because both of these countries are different in size and are really different in population size. Moreover, GPA also doesn’t account for the unreported earnings in the country. In Pakistan, there is an estimated 34% of the GPA that isn’t reported due to black markets and the subsistence farming practices. Another contributing factor is the large proportion of taxes that go uncollected due to the poor law enforcement and corruption within the tax collecting authorities. On the other hand, in Norway just an estimated of 3% of the GPA goes unreported. The reason for this is the more efficient tax collection system and better law enforcement in Norway.

If we look at the GDP growth rates, Pakistan seems much better off than Norway. Its growth rate has fluctuated around 3%-4% while Norway has shown steeper fluctuations and an overall low growth in GDP. The decline in GDP growth during the global recession is due to the falling oil prices that affected Norway more than Pakistan since oil is their major export. The reason that the growth rate is low for Norway is because the domestic market in Norway has now reached a saturation point and thus there is very little growth potential. Also, growth rates are measured in relative numbers. Since developed countries have a large total number, their relative growth is small, but growth in absolute terms is high.

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1 GDP growth rate

In order to counter the effects of different population and different currency rates, later it was found that it was better to compare countries on the basis of GDP per capita calculated on the basis of PPP (purchasing power parity) which assumes that every item has the same price worldwide.

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2 GNI per capita (PPP)

The GNI per capita for Pakistan fluctuates around $4,500 while the GNI per capita for Norway is around $60,000 which is the 4th highest in the world.  This is where we see a lot of difference between the two countries. The GDP was Norway is twice of that of Pakistan and that wealth is being shared a just 5 million people in comparison to Pakistan’s 185 million.

So why does Norway perform better?

One of the major reasons for Norway to be so developed today is that Norway is blessed with a lot of hydrocarbon reserves. More than 50% of their exports are hydrocarbon products. In the late 1970s, Norway was able to heavily tax international oil companies who were interested in investing for oil extraction. From this revenue, Norway was able to experience really steep growth during the industrial revolution. On the other hand, although Pakistan has many natural resources, none of them are as profitable as oil. Moreover, the difference does simply not lie in the availability of oil. Is oil a major reason for development in Norway? It is, but the differences in policies, government commitment and circumstances are what set Norway apart from Pakistan.

These policies will be discussed in detail later on.

Does more money mean a better life for the people of Norway?

Having a high GDP doesn’t always mean a high quality of life. Amartya Sen argues that the freedom that people have with the money they earn, that is one of the major indicators that defines development in a country. GDP per capita can be misleading where there accumulation of wealth in only a few hands. Therefore let us now compare these countries on the basis of HDI.

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