Barriers to Economic Growth in Bangladesh

Topics: Investment, Economics, Political corruption Pages: 5 (1878 words) Published: May 4, 2011
“For a developing country of your choice, identify and critically evaluate the barriers to growth and development. How can public policy attempt to lift those barriers?”

This piece will look to identify and evaluate barriers to growth and development in Bangladesh, and then suggest ways of overcoming those barriers. Bangladesh has achieved significant results in her economic sector since her independence in 1971. Through the Nationalization Order of 1972, all key industries including jute, cotton textiles and sugar were vested upon the public sector. The wholesale nationalization of industries resulted in a low growth of the economy. The Gross National Product (GNP) per capita of the country grew at an average annual rate of 0.4 per cent until 1985 compared to 3.8 per cent for the group of low income countries (The World Development Report, 1989). The low growth performance of the economy put pressures on the government to privatize major industries and to undertake economic reforms.

The economy has improved dramatically in the 1990’s, however Bangladesh still suffers from major growth deficiencies in several areas such as foreign trade in the South Asian region. Efforts to fulfill Bangladesh’s macroeconomic targets have been complicated mainly due to various factors including the country’s large population (Bangladesh is the most densely populated country in the world), and corruption within the government to name just a few. Other major obstacles for Bangladesh to overcome in order to achieve growth include the inefficiency of state owned enterprises, inadequate power supplies and slow implementation of economic reforms. Even though Bangladesh has made some progress improving the conditions for foreign investors and liberalizing the capital markets, foreign investors in a range of sectors are still increasingly frustrated with the politics of confrontation, the level of corruption, slow rate of reform and privatization and deregulation of the public sector and the lack of basic infrastructure. Mauro (1995) studies how corruption and other institutional factors affect economic growth. Using several different indices of institutional quality and the extent of corruption he found that corruption and bureaucratic inefficiency has a negative effect on the rate of domestic investment. Corruption lowers the rate of investment and thereby undermines the potential for economic growth.

One of the most prominent barriers to growth and development in Bangladesh is the high level of corruption. A TIB (Transparency International, Bangladesh) report said that Bangladesh loser nearly 3 percent of annual GDP to corruption. Global watchdog Transparency International rated Bangladesh the world’s most corrupt nation for five consecutive years from 2001. Subsequently the rating improved, to 10th in 2008, after a military backed interim government took tough anti-graft steps. However, it has been suggested that corruption and government inefficiency cost Bangladesh 450 million dollars a year, truly a tremendous amount of money for an economy that the UN has classified as one of the least developed, Transparency International (2004). Wei (2000a) studies whether host-country corruption affects the ability to attract FDI (Foreign Direct Investment). Using three different indices to measure corruption, Wei finds that corruption has a significantly negative effect on FDI inflows. Wei also notes that the extent of corruption tends to be correlated with measures of institutional quality. Wei (2000b) investigates the link between corruption and the composition of capital inflows. The study controls for host-country policies toward FDI and finds that corruption has a negative effect on FDI inflows. Corruption changes capital inflows away from FDI and toward bank loans. An explanation for the widespread existence of corruption in the developing economies can be the low wages of government officials. Since the utility of...
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