The shift from a rural, agrarian economy to an urban, industrial economy is integral to the process of economic development (Kaldor, 1966, 1967). Although policymakers in the least developed countries (LDCs) have, at various times, attempted to make agriculture the primary engine of economic growth and employment generation, this approach has not worked, not least because of the contributions of the Green Revolution, which has had the dual effect of increasing agricultural productivity in the LDCs and displacing the rural labour force at the same time. Led by the example of the East Asian economies, most LDCs now accept the need for greater industrialization as the fastest path to economic growth. In particular, countries such as Japan, Taiwan and South Korea have demonstrated that an export-oriented industrial strategy can not only raise per capita income and living standards in a relatively short time; it can also play a vital role in modernizing the economy and integra ting it with the global economic system.
Bangladesh, one of the archetypal LDCs, has also been following the same route for the last 25 years. Once derided as a "basket-case" by Henry Kissinger (The Economist, 1996), the country stumbled across an economic opportunity in the late 1970s. New rules had come to govern the international trade in textiles and apparel, allowing low-cost suppliers to gain a foothold in American and European markets. Assisted by foreign partners, and largely unaided by the government, entrepreneurs seized the opportunity and exploited it to the fullest. Over a period of 25 years, the garments export sector has grown into a $6 billion industry that employs over a million people. In the process, it has boosted the overall economic growth of the country and raised the viability of other export-oriented sectors.
This essay analyzes the processes by which global trading rules came to help out a poor country like Bangladesh. It demonstrates t he impact of the rule changes on the garments sector, and the response of the sector to multiple challenges and obstacles. It also discusses what steps Bangladesh should take in order to deal with the full liberalization of the international garments trade, which occurred in January 2005 and which could potentially threaten the country's growth prospects. Finally, it details some of the recent developments that have occurred since liberalization took effect.
1.1 OVERVIEW OF THE BANGLADESHI ECONOMY
Bangladesh is a tropical country in South Asia that is situated in the delta of two major rivers that flow down from the Himalayas (the Ganges and the Jamuna). The country's land surface is therefore largely composed of alluvial silt, rendering the soil highly fertile. Historically, this has made Bangladesh an agricultural nation; although agriculture contributes only about a fifth of the national GDP, it employs three-fifths of the labour force (ADB, 2005).
Bangladesh has an estimated population of 140 million (circa 2005), living in an area of about 55,000 square miles. It thus has the unwanted distinction of being the world's most densely populated country, and this overpopulation is at the root of many of Bangladesh's socioeconomic problems. However, the population is largely homogeneous in terms of ethnicity, language, and religion, and this provides a valuable element of national cohesion.
In spite of numerous constraints, the economy has been on a ste ady growth path for the last 15 years, mainly due to private sector dynamism. The constraints include pervasive political instability and violence, endemic corruption and disregard for the law, frequent natural disasters, inefficient state-owned enterprises that are hotbeds of trade unionism, lack of political will to carry through necessary economic reform, inadequate infrastructure at all levels (power generation, roads and highways, port facilities), etc.
Nevertheless, the economy has proved to be resilient. Since 1990, it has grown at an average rate of 5% per year. The Asian Development Bank projects that real GDP growth will increase to 6% in 2006 and 2007 (ADB, 2005). Bangladesh's total GDP stood at $275 billion in 2004, and per capita GDP was $2,000 (adjusted for purchasing power).
The table below lists some key macroeconomic indicators for the period 2004-2006:
Sectorally, services constitute the largest portion of GDP with 51.7%. Industry accounts for 27.1% and agriculture 21.2%. However, the distribution of the labour force is reversed, with most people still working in agriculture (61%), followed by services (27%) and finally industry (12%). This imbalance between output and employment is indicative of a large amount of "disguised" unemployment and underemployment. Unemployment (including underemployment) is estimated to be about 40%. The poverty rate, as of 2004, is about 45%.
As shown by the above table, merchandise exports have been growing strongly in recent years and this trend is set to continue. While imports also exhibit strong growth, it should be noted that the bulk of imports consists of inputs into the production process, e.g. machinery and equipment, fuel and petroleum products, chemicals, iron and steel, cement, fabric a nd accessories (for garments production), etc. The breakdown of various exports by sector is given in the table overleaf (Bangladesh Bank, 2005). The figures are for the 2003-2004 fiscal year.
As can be seen from Table 2, garments and textile items are the dominant export product, accounting for 77% of the country's total export receipts. This is a relatively new phenomenon. For centuries, the chief export of the Bengal economy was jute, a natural fibre which is used in making carpets, sacks and hessian, but whose economic value went into precipitous decline after the advent of plastic bags and synthetic packaging material in the 1960s and 1970s. How the garments sector claimed the position of top export earner in the years since is discussed in Chapter 3.84 Comments
1. | November 26, 2006 at 4:47 am
these data is helpful for knowing the GDP contribution of the garments sectors in Bangladesh
2. ALI | January 17, 2007 at 2:39 pm
Politics in International Business
It is the establishment of transnational rules and regulations that enhance economic trade and cooperation among countries.
Levels of Economic Integration:
1. Free trade area: A free trade area is an economic integration arrangement in which barriers to trade among member countries are removed. Under this arrangement each participant will seek to gain by specializing in the production of those goods and services for which it has a comparative advantages and importing those goods and services for which it has a comparative disadvantage. One of the best known free trade arrangements is the north American Free Trade Agreement (NAFTA), a free trade area currently consisting of Canada, the Us and Mexico. Trade between the three members of NAFTA is now in the range of &1 trillion annually.
2. Customs Union: A custom Union is a form of economic integration in which all tariffs between member countries are eliminated and a common trade policy toward non member countries is established.
This policy often results in a uniform external tariff structure. Under this arrangement, a country outside the union will face the same tariff on exports to any member country receiving the goods.
3. Common Market: A common market is a form of economic integration characteristics by no barriers to trade among member nations, a common external trade policy and mobility of factors of production among member countries.
A common market allows reallocation of production resources such as capital, labor, and technology based on the theory of comparative advantage. Example: EU is the successful common market and is now focusing on political integration.
4. Economic Union: An economic union is a deep form of economic integration and is characterized by free movement of goods, services and factors of production between countries and full integration of economic policies.
An economic union 1) unifies monetary and fiscal policy among the member nations 2) has a common currency and 3) employs the same tax rates and structures for all members.
5. Political Union: A political union goes beyond full economic integration, in which all economic policies are unified, and has a single government.
This represents total economic integration, and it occurs only when countries give up their national powers to leadership under a single government.
Example: We combined independent states into a political union. The unification of west and East German in 1991 has also created a political union, the two nations now have one government and one set of overall economic policies
Trade Creation occurs when members of an economic integration group begin focusing their efforts on those goods and services for which they have a comparative advantage and start trading more extensively with each other.
Example: The US and Mexico have an agreement that allows cars to be assembled in Mexico and shipped into the US. As a result, Mexico, a low cost producer, supplies a large number of vehicles sold in America and both countries prosper.
Trade Diversion occurs when members of an economic integration group decrease their trade with non- member countries in favor of trade with each other. One common reason is that the removal of trade barriers among member countries makes it less expensive to buy from companies within the group and the continuation of trade barriers with non member countries makes it more difficult for the latter to compete.
Thus trade diversion can lead to the loss of production and exports from more efficient non member countries to less efficient member countries that are being protected by tariffs or other barriers. The creation of economic integration groups is beneficial only if trade creation exceeds trade diversion.
The European Union:
The foundation of the European Union was laid in 1957 by the Treaty of Rome.
The six� Belgium, France, Italy, Luxembourg, the Netherlands and West Germany) nations who created the ECSC were the original founders of what was initially called the European Economic Community and later the European Community.
By 1991 six other national joined the EC (Great Britain, Denmark, Greece, Ireland, Portugal, and Spain) and by 1995 Austria, Finland and Sweden were also admitted to the EC which was now renamed the European Union.
The main provisions of the following treaty of 1957 were:
1. Formation of a free trade area among the members would be brought about by the gradual elimination of tariffs, quotas, and other trade barriers.
2. Barriers to the movement of labor, capital and business enterprises would eventually be removed
3. Common agricultural policies would be adopted.
4. An investment fund to channel capital from the more advanced regions of the bloc to the less advanced regions would be created.
5. A customs union characterized by a uniform tariff schedule applicable to imports from the rest of the world would be created.
These nations formed the European Free Trade Association, whose primary goal was to dismantle trade barriers among its member.
There are five major institutions that mange the EU:
1. The European Council is composed of the heads of state of each EU member country as well as the president of the European Commission. The purposes of these meetings are to resolve major policy issues and to set policy direction.
2. The Council Of Ministers is the major policy decision making body of the EU.
3. The European Commission has 20 members who are chosen by agreement of the member government. France, Germany, Italy, Spain, and the UK have two representatives each, and the other member's one each. It handles a great deal of the technical work associated with preparing decisions and regulations.
4. The European parliament currently has 630 members. The individual are elected directly by the voters in each member country. The parliament serves as a watchdog on EU expenditures in addition to evaluating other decisions of the Council.
5. The court of Justice has one judge appointed from each EU member country; this court serves as the official interpreter of EU law.
Other Economic alliances:
The Andean Pact is an economic union that was formed in 1969 by Bolivia, Chile, Colombia, Educador, and Peru. The original objectives of the Ancom
countries were to integrate themselves economically, to reduce internal tariffs, to create a common external tariff and to offer special concessions to the two smallest members, Bolivia, Educador. The group also agreed that no foreign direct investment would be allowed in sectors such as banking, telecommunications, and retails sales and those foreign investors in all other
Sectors would be required to sell at least 51% of their holdings to local investors over a 15 year period.
Mercosur is a free trade group that was formed by Argentina and Brazil in 1988 to promote economic cooperation. Today the group has been expanded to include Paraguay and Uruguay with Chile and Bolivia as associate members. In 1995 the members agreed to a five year program under which they hoped to perfect their free trade area and move toward a full customs union.
The Association of Southeast Asian Nations was formed in 1967 and now includes Brunei, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. This economic bloc is different from most others in that the primary emphasis is not on reducing trade barriers among the members, although this has been done, but rather on promoting exports to other countries.
The free Trade Area of the America was re launched in Quebec City in April 2001 to eliminates most trade restrictions. All the economies of North, Central and South America, along with all Caribbean economies have agreed to start the ETAA in 2005. It will be built upon the framework of NAFTA.