Structural Transformation of Bangladesh Economy: A South Asian Perspective (South Asia Economic and Policy Studies)

This book examines the theory and global evidence on structural transformation along with stylised facts and implications using, among others, a dynamic panel model, for South Asia. The characteristics of the structural transformation process in Bangladesh bring out the relevance of a comprehensive and inclusive South Asian ‘brand’ in view of the challenges of large population size, high burden of poverty, rising inequalities and its compulsion to achieve rapid and sustained inclusive development. The analysis highlights several distinct characteristics of Bangladesh’s structural transformation including changes in value added, trade, employment, productivity, formal-informal jobs, and opportunities for low-skilled workers. The book suggests that the manufacturing sector could not create the required number of jobs and generate rapid absolute and relative productivity gains in the Bangladesh economy. Although the services sector has largely led output and employment growth, servicessubsectors with strong labour absorptive capacity have low average productivity. Hence, growth-enhancing structural transformation led by these subsectors is likely to be less dynamic than required for rapid employment-creating growth in the economy. The book’s analysis on COVID-19 and cyclone Amphan shows that an integrated disaster and development paradigm is needed for Bangladesh. An inclusive and health and well-being focused structural transformation presents the pathway to advance the people-centred approach to development in Bangladesh through both vulnerability reduction and investments in sustainable development that would offset both known and unknown disaster threats. The key for Bangladesh is to skillfully manage the ‘developer’s dilemma’ of achieving both structural transformation in terms of large productivity gains and inclusive growth for reducing poverty and rising inequalities. This book is relevant to students, academicians and development practitioners and others interested in contemporary development. Preface Contents About the Authors Abbreviations List of Figures List of Tables 1 Introduction 1.1 Introduction 1.2 A Multidimensional View 1.3 Bangladesh’s Structural Transformation 1.4 Primacy of Equality Horizon 1.5 Organisation of Chapters References 2 Structural Transformation: Theory and Global Evidence 2.1 Introduction 2.2 Measures of Structural Transformation 2.3 Gains from Structural Transformation 2.4 Structural Transformation: Global Trends 2.4.1 Historical Trends in Developed Countries 2.4.2 Recent Trends in Developed and Developing Countries 2.4.3 Structural Transformation and Premature Deindustrialisation 2.5 Structural Transformation and Development Theory 2.5.1 The Neoclassical Growth Models 2.5.2 The Structuralist Framework 2.5.3 The New Structural Economics 2.5.4 The New Latin American Structuralism 2.5.5 The Value Chain Approach 2.5.6 Resource-Based Industrialisation 2.6 Empirical Evidence on Structural Transformation 2.6.1 Manufacturing as the Engine of Economic Growth 2.6.2 Role of ST in Labour Productivity Growth 2.6.3 Structural Change Within Manufacturing 2.6.4 Industrial Upgrading 2.7 Premature Deindustrialisation: Role of Services Sector 2.8 Structural Transformation and Development 2.8.1 Structural Transformation and Labour Market Changes 2.9 Structural Transformation, Employment, and Poverty 2.9.1 Structural Transformation and Human Development 2.10 Concluding Remarks References 3 Structural Transformation in South Asia: An Overview 3.1 Introduction 3.2 Structural Transformation in South Asia 3.2.1 South Asian Growth Surprises 3.2.2 GDP Growth and its Composition 3.2.3 Changes in Macro Aggregates 3.3 Productivity Growth and ST in South Asia: A Panel Data Analysis 3.3.1 A Dynamic Panel Model for South Asia 3.3.2 Methodology and Data 3.3.3 Empirical Results and Implications 3.4 Factors Influencing ST in South Asia 3.4.1 Reforms for Transition and Growth 3.5 Poverty and Human Development 3.5.1 Multidimensional Poverty in South Asia 3.6 South Asia: A Region of Growing Inequality 3.6.1 Income and Wealth Inequality 3.6.2 Landlessness and Rising Inequality 3.6.3 Gender Inequality 3.6.4 Rising Informality in Employment 3.7 Inequality in Access to Basic Services 3.7.1 Access to Water and Sanitation 3.7.2 Access to Health Services 3.7.3 Access to Education 3.7.4 Inequality in Fiscal Regime 3.8 Export Sophistication in South Asian Countries 3.9 Concluding Remarks References 4 Structural Transformation in Bangladesh: Trends and Characteristics 4.1 Introduction 4.2 Economic Structure Before Independence 4.3 Growth and Structural Transformation, 1971–2020 4.3.1 Growth of GDP and GDP Per Capita 4.3.2 Changes in Uses of GDP 4.3.3 Changes of GDP by Industrial Origin 4.3.4 Savings and Capital Formation 4.3.5 Sectoral Composition of GDP 4.4 Economic Growth and Structural Transformation 4.4.1 Structural Transformation in the Bangladesh Economy 4.4.2 Interdependence, Linkages, and Leading Sectors 4.5 Changes in Sectoral Share of Employment 4.6 Uniqueness of Bangladesh’s Structural Transformation References 5 Bangladesh’s Rural Transformation 5.1 Introduction 5.2 Economic Structure and Agriculture in South Asia 5.2.1 Nature of Rural Transformation in Bangladesh 5.2.2 Urge for Diversifying Rural Livelihoods 5.3 Changes in Agriculture in Bangladesh 5.3.1 Growth in Crop and Horticulture 5.3.2 Drivers of Crop Sector Growth 5.3.3 Changes in Resource Base of Agriculture 5.3.4 Production Organisation: Land Reforms and Property Rights 5.4 Non-crop Sector in Bangladesh 5.4.1 Growth and Development of Fisheries 5.4.2 Livestock and Poultry 5.4.3 Women in Non-crop Agriculture 5.4.4 Forestry Activities 5.5 Agribusiness Development for Rural Transformation 5.5.1 Marketing Linkages in Agriculture 5.5.2 Value Chain Development 5.6 Commercialisation of Bangladesh Agriculture 5.6.1 Agricultural Diversification 5.7 Climate Change Mitigation and Adaptation 5.7.1 Climate Change and Bangladesh Agriculture 5.7.2 Climate Change Adaptation: Modifying Agriculture 5.7.3 Protecting Agriculture 5.8 Contract Farming and Small Farmer Implications 5.9 The Rural Non-farm Sector 5.10 Rural Transformation: Future Directions 5.11 Rural Transformation: Policy Priorities 5.12 Concluding Remarks References 6 Industrial Transformation in Bangladesh 6.1 Introduction 6.2 Industry Sector in Bangladesh 6.2.1 Employment Structure and Industry Sector Dynamics 6.2.2 Evolution of Industrial Policy Framework 6.2.3 Changes in Manufacturing Industry 6.3 Trade Liberalisation and Manufacturing 6.4 Sources of Manufacturing Growth 6.4.1 Structure of Manufacturing Industry 6.4.2 SMEs and Cluster Development 6.4.3 Cottage and Microenterprises 6.5 The RMGs Industry 6.6 Role of FDIs in Bangladesh 6.7 Challenges to Manufacturing Growth 6.8 Policies for Stimulating Manufacturing Growth 6.9 Concluding Remarks References 7 Services Sector in Bangladesh: Changes and Prospects 7.1 Introduction 7.1.1 Modernising Services Sector in South Asia 7.2 Bangladesh’s Services Sector 7.3 Employment Dynamics in Services Sector 7.4 Software and ITES in Bangladesh 7.4.1 ICT Industry in Bangladesh 7.4.2 Logistics and Transportation: Megaprojects 7.4.3 Challenges and Issues in High Services Growth 7.5 Digital Financial Services 7.5.1 Women’s Digital Inclusion 7.5.2 Digital Inclusion of the Poor 7.6 Rising Remittances and Their Impact 7.6.1 Remittances, Household Income, and Asset Accumulation 7.7 Concluding Remarks References 8 Inclusive Structural Transformation: Policy Agenda 8.1 Introduction 8.2 Bangladesh’s ST: Need for an Inclusive Agenda 8.3 Developing Entrepreneurship and Enterprises 8.4 Policy Implications 8.4.1 Creating Productive Employment 8.4.2 Interaction Between Formal and Informal Economy 8.4.3 Countering Labour Market Imbalances 8.4.4 4IR and Small Farmer Development 8.5 ST and Shared Prosperity References 9 Unexpected Challenges: Covid-19 and Cyclone Amphan 9.1 Introduction 9.2 Cyclone Amphan in May 2020 9.3 Global Covid-19 Pandemic 9.4 Covid-19 and Bangladesh 9.5 Socioeconomic Ramifications of Covid-19 9.5.1 Impact on Employment and Labour Market 9.5.2 Healthcare System and COVID-19 Response 9.5.3 Gender Dimension of Response 9.6 Dimensions of Human Vulnerability 9.7 Need for Multi-sectoral Responses 9.7.1 Rapid Responses 9.7.2 Medium and Long-Term Response Framework 9.7.3 Covid-19 and the Informal Economy 9.7.4 Covid-19 and the Microfinance Sector 9.8 Fiscal and Monetary Policy Framework for Covid-19 9.9 Exploiting Potentials of the ‘Gig Economy’ 9.10 Concluding Remarks References Index