Disaster in Bangladesh: The Collapse of the Rana Plaza Building
Case 27
1. From an economic perspective, was the shift to a free trade regime in the textile industry good for Bangladesh?
Employment and economic growth in Bangladesh depends upon exports of textile products which were allowed through a preferential quota system for textile market export from poor markets to rich markets. As soon as the shift to a free trade regime appeared along with the competition with countries such as China and Indonesia the quick collapse of Bangladesh’s textile industry has been predicted. However, the opposite occurred. We can highlight three major reasons to explain what happened: First is labor costs are low, even lower than in China. Obviously low hourly wages rates explain it but not only. Investments by textile manufacturers in productivity-boosting technology lowered the labor costs in Bangladesh making it one of the world’s low-cost producers. Indeed, this was an advantage during the recession because big importers increased their purchases at low prices. Second is strong network of supporting industries. Thus, garments manufacturers save transport and storage costs, import duties which boost their productivity. The last one is many western importers looking to diversify their supply sources. Indeed, importers fear to become too dependent toward China.
As a conclusion, the reasons why Bangladesh took advantage from the shift to a free trade regime in the textile industry are beyond only low wage rates. Moreover, Bangladesh’s textile market may keep growing the next years because the trend to shift textile production away from China may continue as the wage rates are increasing fast.
2. Economically who benefits when retailers in Europe and the United States source textiles from low-wage countries such as Bangladesh? Who might lose? Do the gains outweigh the losses?
For Bangladesh, it has competitive advantages which are low cost and low price. For U.S., it has higher price and fewer garments purchased locally; also, it has
1. From an economic perspective, was the shift to a free trade regime in the textile industry good for Bangladesh?
Employment and economic growth in Bangladesh depends upon exports of textile products which were allowed through a preferential quota system for textile market export from poor markets to rich markets. As soon as the shift to a free trade regime appeared along with the competition with countries such as China and Indonesia the quick collapse of Bangladesh’s textile industry has been predicted. However, the opposite occurred. We can highlight three major reasons to explain what happened: First is labor costs are low, even lower than in China. Obviously low hourly wages rates explain it but not only. Investments by textile manufacturers in productivity-boosting technology lowered the labor costs in Bangladesh making it one of the world’s low-cost producers. Indeed, this was an advantage during the recession because big importers increased their purchases at low prices. Second is strong network of supporting industries. Thus, garments manufacturers save transport and storage costs, import duties which boost their productivity. The last one is many western importers looking to diversify their supply sources. Indeed, importers fear to become too dependent toward China.
As a conclusion, the reasons why Bangladesh took advantage from the shift to a free trade regime in the textile industry are beyond only low wage rates. Moreover, Bangladesh’s textile market may keep growing the next years because the trend to shift textile production away from China may continue as the wage rates are increasing fast.
2. Economically who benefits when retailers in Europe and the United States source textiles from low-wage countries such as Bangladesh? Who might lose? Do the gains outweigh the losses?
For Bangladesh, it has competitive advantages which are low cost and low price. For U.S., it has higher price and fewer garments purchased locally; also, it has