Economic growth in Bangladesh:
experience and policy priorities
The Liberation War of 1971 destroyed about a fifth of Bangladesh’s economy, and the post-war dislocations left the country on a slow growth trajectory for better part of two decades. Then the economy accelerated from 1990, driven by a remarkable turnaround in the growth of multi-factor productivity. We identify factors that inhibit another growth spurt: low levels of human capital; poor infrastructure; market failures specific to individual industries; low levels of international trade; corruption; and cumbersome regulations. Of these, we consider tackling infrastructure bottlenecks, promoting trade, and carrying out regulatory reforms as top priorities for the policymakers.
Drishtipat Writers’ Collective
We are grateful to Syeed Ahamed, Rumi Ahmed, Towfiqul Islam Khan, Naeem Mohaiemen, and Asif Saleh for their comments and suggestions. All errors are ours, and ours alone. 1. INTRODUCTION
In the 1960s, the then East Pakistan’s economy grew by an annual average rate of around 4 per cent. About a fifth of that economy was destroyed during the Liberation War of 1971, and severe dislocations caused at that time left Bangladesh on a slower economic growth trajectory for the following two decades. Then the economy accelerated sharply from 1990. Chart 1 illustrates Bangladesh’s economic trajectory over the past five decades. Chart 1: Real GDP
1960 1967 1974 1981 1988 1995 2002 2009
Log of million taka Log of million taka 15.25
The solid grey line shows actual path of GDP. Dotted lines are hypothetical trend paths based on: 1960s trend (green); 1970s/1980s trend (red).
Source: Bangladesh Bureau of Statistics, World Bank, authors’ calculations. Had it continued to grow at the 1960s pace in the decades since, Bangladesh’s GDP would have been 10 per cent higher by 2009. On the other hand, if not for the post-1990 acceleration, the Bangladesh economy would have been 29 per cent lower in 2009 than the actual. The implications of an even a small but sustained increase in economic growth is self-evident. Therefore, it is natural to ask whether another sustained economic acceleration is possible. To paraphrase Lucas (1988):
Is there some action the government could take that would lead the Bangladesh economy to increase its growth rate by another 2 percentage points? If so, what exactly? If not what is it about the "nature of current Bangladesh" that makes it so. The consequences for human welfare involved in questions like these are simply staggering. Once one starts to think about them, it is hard to think about anything else.
We analyse Bangladesh’s growth experience and explore policy priorities that could spur another sustained pick up in growth rate. The paper is structured as follows. In Section 2, we focus on Bangladesh’s growth experience of the past five decades. Consistent with the existing literature, we find that the post-1980s economic acceleration had been due to a turnaround in multi factor productivity (MFP) growth. A combination of macroeconomic stability, education, openness, and the impact of the rapid adoption of information and communication technology may explain the MFP turnaround. In Section 3, we benchmark Bangladesh’s performance with a set of comparable countries. Bangladesh lags behind the reference countries in terms of investment in physical and human capital, and trade. We also discuss policy priorities — increased openness, more investment in human capital, reform of economic and political governance — identified in earlier surveys on the country’s economy in this section....
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