Growth and Development Profile: Bangladesh

In this new growth and development video we look at the fast-growing country of Bangladesh.

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This is a fascinating economy to look at when building your contextual awareness in development economics. Bangladesh is emerging from a low-income to lower-middle income status but is it too dependent on the heavily subsidised Ready-Made Garment (RMG) sector which totally dominates their export pattern and accounts for millions of jobs? Can they meet the huge infrastructure deficit which threatens to undermine the process of urbanisation and transition to a more diversified economy?

Bangladesh is considered a lower middle-income country by the World Bank and moved into middle-income status in 2015. Bangladesh is one of the fastest-growing countries in the world and as such, we can identify some of the benefits and costs from such a rapid pace of expansion. The country has made significant progress in reducing extreme poverty and their per capita income might soon overtake that of India. But a severe infrastructure gap means that it cannot meet many of the sustainable development goals.

Strong growth helps cut extreme poverty

The government’s Vision 2041 seeks to eliminate extreme poverty and secure upper middle- income country status by 2031 and achieve high income country status by 2041.

Here are twenty key development indicators for Bangladesh.

• Foreign Direct Investment (FDI) remains low at less than 1 percent of GDP
• ILO estimates 56.6% of population aged 15+ are in labour force in 2018; the female participation rate is only 33.2%
• More than one-third of under five children that are stunted and underweight are at risk of failing to reach their developmental potential, thereby having long-term effects on academic achievement and economic productivity

Export patterns

Bangladesh is the 54th largest export economy in the world and the 123rd most complex economy according to the Economic Complexity Index (drawing on data for 2017). A hugely key aspect of their economy is the heavy dependence on the ready made garment industry (RMG) which now accounts for the vast majority of their exports of goods.

A country has a revealed comparative advantage in a product if the product’s share in the country’s exports is greater than the share of the product’s total exports in global exports. Bangladash clearly has a revealed comparative advantage in articles of apparel such as tee shirts and trousers. But it does not yet have comparative advantage in the production of intermediate goods used in the production of more complex final goods.

The low level of complexity in the economy means that their garment sector has few linkages to other more complex manufacturing industries and this – over the medium term – will hold back the potential to reach significantly higher per capita incomes.

The importance of remittances

Bangladesh is an another example of a country that has been increasingly reliant on net inflows of remittances. In 2018, they climbed above $15 billion.

The Gulf countries, especially Saudi Arabia are the single largest source of remittances to Bangladesh, but they are cracking down on foreign workers to curb unemployment among their citizens so this flow of remittance income may decline in the years to come. Bangladesh has a very young labour force and cannot always create the new jobs needed to absorb well over a million young people entering the labour market each year. On average, more than half a million Bangladeshi workers go abroad annually as a part of a diaspora.

The challenge of achieving sustainable urbanisation

This is perhaps one of the greatest long-term challenges facing Bangladesh. No country has ever reached high-income status without urbanising first and Bangladesh's urban population is growing rapidly from 38 million in 2005 to 61 million in 2018.

Bangladesh is one of the most densely populated countries in the world and population projections indicate that by 2050, about 52 percent of the country’s population will live in urban areas. Bangladeshi cities, including Dhaka, are characterised by an infrastructure deficit and low service delivery, often resulting in poor living conditions. For example, Dhaka has over 3.5 million people living in low-income communities, where access to basic services such as water supply, sanitation, and health care is limited. For example, Dhaka’s existing sewerage system serves only about 20 percent of the city’s population.

Mega infrastructure projects are needed to address these deficiencies and Bangladesh is addressing these with a rise in government capital investment in part funded by money from the Asian Infrastructure Investment Bank (AIIB) and also investment from China as part of their Belt and Road Initiative.

Exposure to the impact of climate change

Sixty percent of Bangladesh's land surface is at five meters or less above sea level and the country has long been afflicted by frequent flooding. But looking ahead, Bangladesh is considered to be one of the countries most threatened by extreme climate change-related natural disasters. Some estimates claim that rising sea levels and extreme rainfall episodes could lead to a loss of 17 percent of land surface and 30 percent of food production in Bangladesh by 2050.

Trade diversion impact of US-China trade war

There is some evidence that the persistent trade tensions between the United States and China leading to the widespread adoption of higher import tariffs may be helping countries such as Vietnam and Bangladesh.

Chinese entrepreneurs are setting up factories in Bangladesh to bypass US tariffs. American retailers are also placing more orders with Bangladesh in order to offset increasing tariffs. The result has been a surge in Bangladesh apparel production and exports.

Can Bangladesh sustain 7% economic growth?

Bangladesh is classified as a frontier market, and according to the Goldman Sachs Investment Bank, among the next 11 emerging economies, with potential to be among the world’s largest economies along with the BRIC (Brazil, Russia, India, and China).

Three growth drivers in particular may help to sustain growth at or around the 7 per cent level which is sufficient for the economy to double in size every ten years.

1. There is potential for Bangladesh to become a favoured out-sourcing venue for business services
2. Infrastructure investment is essential to achieve sustainable urbanisation
3. A large population and rising per capita incomes will drive consumption growth

Using Bangladesh as applied context in your economic exams

1. Advantages & drawbacks from dependence on garments
2. Infrastructure deficits as a development and growth trap
3. Significance of remittances for economic growth
4. Vulnerability of a country to the impact of climate change
5. Trade diversion effects of trade wars between countries
6. Rural-urban migration - is Bangladesh approaching a Lewis Turning Point?