Potential for Progress: Opportunities for Economic Growth in Bangladesh

By Ahmed, Ashraf | Harvard International Review, Fall 2011 | Go to article overview

Potential for Progress: Opportunities for Economic Growth in Bangladesh


Ahmed, Ashraf, Harvard International Review


Precarious topography, political turmoil, and a Struggling global economy are tough conditions for any state, let alone a young democracy of 140 million citizens. In light of these problems, Bangladesh's sustained economic growth becomes all the more impressive. Over the past five years, Bangladesh has enjoyed an average real GDP growth of six percent. Labor-intensive industries, in particular textiles, have fueled growth as Bangladesh's tremendous reserves of cheap, low-skill labor have attracted foreign investment. Educational attainment rates are on the rise and Bangladesh has a particularly vibrant political culture, as a vast majority of citizens vote.

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Continued economic progress, however, is by no means assured. For all its economic potential and political vibrancy, Bangladesh suffers from a virulent party conflict. Bangladesh's two major parties, the Awami League (AWT) and Bangladesh Nationalist Party (BNP), figure at the center of this conflict, and their respective leaders, Sheikh Hasina and Khaleda Zia, persist in a blood feud that stretches back to the inception of the nation. Their personal vendettas have embroiled a poor but promising country and threaten future growth. In particular, the charged political atmosphere and instability hinder governmental commitments to long-term infrastructure projects and discourage foreign investment. More importantly, the animosity between the AWL and BNP endanger Bangladesh's potentially most important regional relationship, namely ties with India. The parties vary wildly in their stances towards their powerful neighbor--and as tensions intensify, their differing positions become further entrenched. This is surely foreboding for future relations with India, as a leadership change in Bangladesh may lead to cooler relations at best with a key strategic partner.

Economic Progress and Potential

To be sure, Bangladeshi economic growth pales in comparison to the roaring successes of regional giants, India and China. For the latter two countries, double-digit annual GDP growth has been expected, with anything below a cause for concern. Nevertheless, Bangladesh's six percent average compares favorably with other high-growth states such as Vietnam and Malaysia, both at seven percent. Moreover, Bangladesh has managed to achieve consistent growth in spite of its government, a far cry from the government-aided and -directed expansion in China and other export-oriented East Asian states. This economic growth, in turn, has been a boon to a population that has struggled with pervasive and crippling poverty for most of the nation's existence. The percentage of the population living below the poverty line has decreased from a 15-year high of 45 percent in 2004 to 40 percent in 2010.

The crucial driver of Bangladeshi growth has been a thriving textiles industry that relies on the country's vast amount of cheap, unskilled labor. Garment exports accounted for US$12.3 billion dollars, nearly 12 percent of GDP. Furthermore, the rate of textile exports accelerated in 2009, despite the world economy floundering in the throes of a deep recession, as textile exports to the United States increased by 10 percent.

The growth of Bangladesh's most robust industrial sector is especially encouraging given the expiration of the Multi Fibre Agreement (MFA). This arrangement, which lasted from 1974 through 2005, imposed quotas on textile exports from developing countries to the developed ones. This, in effect, helped propel Bangladesh to a thriving textile industry in the 1990s through the early 2000s. However, experts feared that the expiration of MFA in 2005 would effectively cripple Bangladesh, leaving it uncompetitive against bigger textile producers like China. These fears were ultimately unfounded, as Bangladeshi labor proved to be both cheaper and just as effective as their bigger Asian competitors. In fact, textile exports actually increased by US$500 million immediately after the expiration of the MFA. …

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