Bangladesh Economic characteristics

Overview

After Bangladesh's creation 46 years ago, many doubted that it would survive as an independent state. The main problems facing the new state was a high annual population growth, the highest rural population density in the world and chronic malnutrition. Since then, it became known as the 'basket case', a term coined by Henry Kissinger saying that Bangladesh depended on foreign aid. However, Bangladesh has seen an increase in gender equality, standard of living, and literacy in the past decades.
Population: 156.6 million
Life Expectancy in Bangladesh

Development

Life Expectancy: 70.3 years (2012)

Literacy Rate: 61.5%

Pupils completing primary school: 60%

HIV infection rate : 0.06% (2009)

HDI ranking: 142

Spending on healthcare: 3.1% of GDP (2006)

Children going to School, Bangladesh

Trade Statistics

Import (US$ Thousand): 41,221,651.78

Export (US$ Thousand): 24,313,744.24

Country Growth (%):14.33

GNI per capita (current US$): 1,190

Import (US$ Thousand): 41,221,651.78

Exports of goods and services (% of GDP): 17.34

Imports of goods and services (% of GDP): 24.75

Service exports (BoP, current US$): 3,116,600,804.90

Export (US$ Thousand): 24,313,744.24

Service imports (BoP, current US$): 7,699,454,793.90

Imports and Exports in Bangladesh

Agriculture: 19% of GDP

Industry: 29% of GDP

Services: 52% of GDP

Agriculture: 48% of employment

Industry: 15% of employment

Service: 37% of employment

GOVERNMENT DEBT: 27.2% OF GDP

Economic Problems in Bangladesh

High Inflation due to investors not financing in the country - signalling a decrease in production. Businessmen are not selling their products resulting in a scarcity of products, increasing their prices.

Low Skill of the migrant labour force - large percentage of Bangladeshi citizens are migrant workers but at a low skill level - lowest labour costs in the world

Depleting gas reserves resulting in a crisis and illegal use of gas bymany consumers affecting cities and rural areas. Less than 3% of energy from renewable energy -- not environmentally sustainable

Abysmal quality of education even though school enrolment has increased

Drop-out rate extremely high - only 60% of pupils complete primary school
The textile industry is crucial for employment in Bangladesh. The majority of Bangladeshi exports are textiles, and by 2013, Bangladesh had approximately 5,000 garment factories. 4 million people, mostly women are employed in Bangladesh's garment industry. However, one issue in the garment industry is poor working conditions and a negative impact on workers' health.
Literacy in Bangladesh

Barriers to Economic Growth in Bangladesh

Poverty Cycle

low incomes

low savings

low investment

low productivity

low income...

International trade barriers: restrictive trade policy

Out of 125 countries studied, Bangladesh ranked 113th and 107th in trade policy and institutional environment

The main barrier of growth Bangladesh faces is the poverty trap

low standard of living means that the Bangladeshi can't save money to further invest in capital

Most of the employment in Bangladesh is agricultural = limited --> hard to save

Opening trade into other countries could start improvement

Education and Healthcare in Bangladesh and Spain
Spain is a relatively more developed nation compared to Bangladesh. This is clearly shown by the education and healthcare indicators above, where both countries are improving in literacy and in government health spending per capita, but Bangladesh still has a far way to go to reach even Spain's lowest point. However, growth in Bangladesh is steeper which means in time, Bangladesh may be able to develop and reach Spain's level in both education and health.

Development Factors in Bangladesh

Education

Education in Bangladesh doubled from 45% of girls enrolled in primary school in 2000 to 90% in 2005. Bangladesh took part in Education for All (EFA) and participation in working towards education has expanded remarkably since the 1990's. Equality in gender education is close to fully achieved. Education results in development because the workforce of the country is more skilled. A highly skilled workforce means that productivity will be higher and therefore output will increase with the same resources. A more skilled workforce means that the population can satisfy firms' demand for skilled labour, raising employment. The higher incomes due to the higher output and employment can increase aggregate demand and therefore GDP. A more skilled workforce also means that the economy can move from having most of the economy being in the primary sector to being in the secondary and tertiary sectors. In Bangladesh, the percentage of workers employed in agriculture decreased overtime as employment in the tertiary sector increased.

Women's Empowerment

In Bangladesh, women empowerment has increased greatly in the past few decades. The spread in primary education has resulted in a greater increase in the percentage of girls enrolled in education compared to boys enrolled in education. In addition, the introduction of microcredit in Bangladesh has increased women's 'incomes', then spent on health, education, and food. Organisations like the Grameen Bank target microcredit on women, empowering them. Furthermore, BRAC in the 1980s sent out volunteers to teach women skills including how to deal with diarrhoea in children, lowering child mortality greatly. The life expectancy of women is two years higher than men's in Bangladesh, and the new family planning has controlled the population to some extent, as well as birth control being made free with government workers distributing pills across the country.

Use of Appropriate Technology

The use of appropriate technology is important to developing countries as it can be considerably cheaper to produce and can provide livelihood's for many in a population. In Bangladesh, the Institute of Appropriate Technology, part of the Bangladesh University of Engineering and Technology was created to support Bangladesh's development objectives. An organisation called Practical Action has programmes dedicated to developing and putting in practice the use of appropriate technology in rural communities in Bangladesh. For example, floods in Bangladesh wash away fertile land every year. Therefore, Practical Action is working with communities to grow cops on sandbars created by river deposits to "increase crop production for marginalised farmers". The use of appropriate technology is important to development because for the invention of labour intensive technologies, local employment and use of local skills and materials increases. Incomes of households increase. Capital intensive technologies can increase efficiency of firms and skill levels of workers.

Institutional Factors

Corruption Perceptions Index 2015

Corruption

Bangladesh loses nearly 3% of annual GDP to corruption and is currently the 13th most corrupt country in the world. Corruption pervades all systems and structures in Bangladesh, from the judiciary system to tax collections.

Import-Substitution or Export-led Growth in Bangladesh

Since independence in 1971, Bangladesh pursued import substitution with high protection and multiple exchange rates. However, this had many drastic effects on Bangladesh's economy as it resulted in a disequilibrium in the balance of payments and relatively low growth. It also resulted in uncompetitive enterprises. All of this led to a shift in economic policy in 1982 to reforming to export-led growth in Bangladesh.

Since the 1980s, Bangladesh has transformed economically, having an average annual growth of 5-6%. They have also achieved middle-income status and there has been considerable development with a decline in poverty, an increase in employment. As previously mentioned, access to better health, education and basic infrastructure has also ameliorated. However, Bangladesh aims to become an upper-middle-income status which means that their annual growth will have to be 7.5-8%. According to the Country Diagnostics Study, the most important constraints to productive growth in Bangladesh are policies that indirectly stunt the development of economic activities, insufficient security, property and land rights and insufficient supply of reliable energy. In order to achieve upper-middle income status, Bangladesh will need to change their policies to promote the development of economic activities.

Textiles is the biggest export in Bangladesh

Out of all of Bangladesh's exports, their highest is textiles by far. Bangladesh is relatively specialised in textiles, which means that labour productivity is likely quite high and Bangladeshi workers are benefitting from it. However, Bangladesh is not among the top countries that export textiles, putting Bangladesh at a threat as they rely on textiles, but other countries likely import textiles from other countries such as China and India, the largest textile exporters in the world. There are other threats to specialisation or overspecialisation, such as countries not developing and diversifying to the tertiary sector as they are benefitting from other sectors such as the primary sector. In Bangladesh, they specialise in textiles which is in the secondary sector, meaning that there is less incentive to diversify into goods and services in the tertiary sector - preventing growth and development.

Bangladesh also lacks in foreign direct investment, which is crucial in long-term development. Possible benefits include employment, better technology, improved productivity and exchange in resources.

Bangladesh has protectionist barriers of trade, including high tariff rates and supplementary duties. There has been a recent decrease in supplementary duties but the rates can range from 5-25%. There are also administrative barriers impeding trade, such as packaging requirements and documents needed prior to trade. However, Bangladesh is a member of the Bay of Bengal initiative for Multi-Sectoral Technical and Economic Cooperation which aims for a tariff free zone by this year. These protectionist barriers protect domestic producers but also harm Bangladesh's GDP. In 2012, it was hypothesised by the World Bank that by reducing regional trade barriers by 2020, Bangladesh's GDP would increase by 17%, as it could result in "cheaper transport costs, wider markets, and broader supply chains", reducing production costs and expanding jobs in the expanding labour market.

Impact of Aid on Economic Development in Bangladesh

Bangladesh is known for being reliant on aid. However, Bangladesh has a high incidence of poverty and inequality. Aid has been found to protect donor's own interests which is impeding the effectiveness in Bangladesh's attempts to increase development. Bangladesh relies heavily on NGO's such as BRAC, the largest NGO in the world that works to bolster development.

“BRAC's overall strategy has been to support the government to (a) improve the livelihood of the poor, and (b) minimize the effect on the poor of external shocks, such as natural disasters.”

The World Bank is one of the largest lenders to Bangladesh and has lent 12.5 billion dollars since Bangladesh's independence, and coordinates aid donors in Bangladesh. In the 1990's, to address governance issues in Bangladesh, the World Bank imposed more strict policy conditions. However, the government was reluctant to implement public sector reforms. However, one of the issues regarding aid to Bangladesh is that there was no analysis of Bangladesh's political economy prior to the reforms and loans therefore the conditions that the World Bank imposed were beyond the government's capacity to deliver.

There are currently 1204 active projects in 1204 and 7 planned projects. The initial aims of the World Bank in Bangladesh was to concentrate on lending for achieving self-sufficiency in food, mobilising domestic resources, improving indicators and enhancing project implementation. Currently, the emphasis of the World Bank assistance program in Bangladesh is governance. Other aims include human resource development, environmental management, gender equity, private-sector growth and integrated rural advancement. However, it can be argued that the assistance program is not very effective due to a lack of understanding about governance in Bangladesh.

The Asian Development Bank is also a great lender to Bangladesh. The focus of ADB lending was in agriculture, energy, transport and education

Impact of Foreign Direct Investment in Bangladesh

Foreign direct investment in Bangladesh enables Bangladesh to "build up physical capital, create employment opportunities, develop productive capacity, enhance skills of local labor through transfer of technology and managerial know-how". There has been a positive correlation between foreign direct investment and Bangladesh's aggregate exports and imports. Foreign direct investment plays an importune tore in Bangladesh's poverty reduction goals, some of their socio-economic objectives.

Foreign direct investment in Bangladesh has increased due to trade liberalisation, private sector led development and opening up of infrastructure and services to the private sector (domestic and foreign). The largest factor resulting in the increase in the past few years is the interest of foreign investors in the telecommunication and energy sector. However, foreign direct investment still has a low share of Bangladesh's GDP and gross investment of the country.

Debt in bangladesh

In 2013, Bangladesh's external debt only made up 21.7% of Bangladesh's GDP. Bangladesh

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Conclusion

Growth and economic development in Bangladesh has been driven by a variety of factors, including foreign aid and direct investment,

Credits:

Created with images by Sampreety - "temple sunset travel" • reachwater.org.uk - "untitled image" • Ben Sutherland - "DSCF1374" • Imazine The Pixel - "Vertical limits" • John Pavelka - "School Bus" • iamkaspar - "Taking a break" • beginmag - "rickshaw transport taxi" • Shykh Seraj - "A woman labour works on a potato field (Photo: Palash)" • DFAT photo library - "Laily, a member of BRAC's Challenging the Frontiers of Poverty Reduction program, taking care of her nursery that lifted her out of poverty, Bangladesh 2008. Photo: BRAC" • D-Stanley - "Sadarghat"

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