The Unassuming Economist

From UNDP:

“This is an opportune time for Bangladesh to recalibrate structural transformation towards an inclusive and greener economy. The policies that enabled the country to increase its footprint in manufacturing—albeit mainly in the ready-made garment sector (RMG)—may not work in the future. Policymakers must choose whether to continue a selective export-driven focus while protecting the rest of the economy, or opt for a more outward alignment of the economy for growth and jobs.

There is empirical evidence that export-driven growth was one of the major drivers of economic development in East and Southeast Asia. Several countries in the region started their industrial journey with RMG, but over time diversified and moved vertically along the value chain. Although export-led growth was pursued as a policy objective, the degree of economic openness varied. With a relatively smaller consumer base, Singapore followed largely laissez-faire economic regulations while limiting foreign capital to strategic sectors. Larger economies such as Indonesia pursued a dualistic approach by opening parts of the economy for exports and investments while protecting some sectors from competition through state-owned enterprises or investment restrictions. 

In Bangladesh, there is a strong correlation between exports, more specifically RMG exports, and economic growth. The share of RMG exports in the national output increased from less than six percent in 1990 to over 13 percent in 2023, after peaking at 20 percent in 2012, according to the World Bank. Although weakening, the positive relationship between RMG exports and jobs is also visible.

It is fair to say that Bangladesh’s export-led growth story has essentially been an RMG story. There have been limited spillover effects for other sub-sectors. RMG products still represent around 85 percent of Bangladesh’s exports. There are also worrying signs that the RMG-led growth has already peaked. In the last decade, the share of private sector investment has remained stagnant at around 22 percent of GDP.

Given its population size and potential, Bangladesh has not been able to attract enough foreign direct investment (FDI). Between 2010 and 2022, annual FDI inflow averaged $2.2 billion, significantly lower than Vietnam and Indonesia, where it averaged $12 billion and $18 billion, respectively, according to UNCTAD. An overly regulated economy, red tape, and weak enforcement of business regulations have often been cited as barriers to domestic and foreign investments in Bangladesh.

From 133 in 2003, Bangladesh’s ranking on the Ease of Doing Business Index improved to 119 but fell as low as 168 out of 190 countries in 2020, the last year before the report was discontinued. On the Global Competitiveness Index, Bangladesh’s ranking was 102 in 2023, which is quite low and has barely improved in the last five years. Bangladesh performs poorly on trade, investment, and financial indicators, broadly indexed as economic freedom. Between 2013 and 2023, the economic freedom score of Bangladesh increased from just 52 to 54.

A narrowly defined export-led growth model can limit the diffusion of technology and learning into other sectors of the economy. Protecting selected industries and businesses to build domestic capabilities is justified if measures are time-bound and not too distortionary for the economy, which can result in skewed distribution of income and wealth.

 Relying on a few export goods without gradually opening and reforming the rest of the economy is bound to run its course. Many analysts have pointed out the anti-export bias that a long period of protection has created for the non-RMG sectors in Bangladesh. There is a need for change, but the sequencing of reforms and timing is also critical.

The first task should be to address regulatory bottlenecks, making it easier for businesses to invest and operate in the country. These can be followed by a gradual rationalisation of import tariffs that should be underpinned by a rigorous cost-benefit analysis. These reforms can go alongside trade facilitation support, incentivising already established local companies to start looking outwards.”

From a paper by Jonatan Svanlund:

“In this chapter, we will study how the shift from a fixed exchange rate regime to a floating exchange rate regime and an independent Riksbank working toward an explicit inflation target took place in Sweden in the early and mid-1990s. Until the beginning of the 1990s, the overriding view among economists and politicians but also in the business community and partly in the trade unions was that a fixed exchange rate was the norm around which economic policy should be based. But in November 1992 it was impossible to maintain the exchange rate and the fixed exchange rate was abandoned, and the shift from the deeply rooted idea of a fixed exchange rate to the new system took place during a very short period. A central theme of the chapter will be the importance of ideas and their role in changing economic regulations and institutional conditions. The central role the Riksbank itself played in reformulating its policy will, therefore, be under scrutiny. The chapter concludes by discussing how the current regime can be seen in relation to general economic developments from 1993 to 2023.”

From a paper by Monsoï Kenneth Colombiano Kponou:

“This article examines the effect of gender role perceptions on the quality of women’s participation in the labor market across six Sahelian countries: Burkina Faso, Chad, Mali, Mauritania, Niger and Senegal. Using data from the demographic and health survey (DHS) to ensure comparability, the perception of gender roles was measured through a composite index. The study analyzed its effect on two employment outcomes: (i) employment sector, and (iii) remuneration mode. The findings indicate that gender roles significantly influence women’s labor market participation, specifically increasing the likelihood of women doing vulnerable jobs. Our results highlight the importance of strengthening policies that support girls’ education. Additionally, there is a need to restructure jobs to address the unique constraints faced by different groups of economic agents, including tailored incentives to promote work-life balance, especially for women.”

From a paper by Zixiang Qi, Bicong Wang, and Yaxin Wang:

“According to the increasing marginal tendency towards tax avoidance, we develop a macro theoretical model and derive an optimal path of economic growth using only dimensionless parameters, which illustrates an inverted U-shaped effect of income inequality on economic growth in the long run. Specifically, economic growth initially moves upwards and subsequently downwards as the Gini coefficient increases. Moreover, this study presents empirical evidence via dynamic GMM estimates based on instrumental variables and PMG estimates relying on cointegration analyses, consistent with the implications of our theoretical model.”

From The Astana Times:

“Making fiscal policy more pro-poor, improving the quality of education, and strengthening climate resilience are critical priorities for policymakers to reduce poverty and inequality in Kazakhstan, according to the Kazakhstan Poverty and Equity Assessment 2024 report, published by the World Bank on Dec. 12.

Kazakhstan’s economy has shown robust growth since 2006, with an average annual rate of 4.7%. This has improved living standards and elevated the country to upper-middle-income status, lifting 5.9 million people out of poverty and reducing the poverty rate from 49.5% to 8.5% over the same period.

Consumption growth, fueled by higher labor incomes, has been the main driver of poverty reduction. However, the report identifies three distinct phases in Kazakhstan’s poverty reduction journey. Between 2006 and 2013, poverty declined rapidly but saw a partial reversal during the 2014-2016 economic downturn, which increased poverty rates. From 2016 to 2021, poverty reduction resumed but at a slower pace.

The middle class has expanded significantly since 2006, increasing 2.5-fold to reach 67% of the population in 2021, compared to 26% in 2006. However, growth stagnated after 2013 as structural transformation and productivity gains slowed. The report underscores the importance of diversifying Kazakhstan’s economy, which remains heavily dependent on commodity exports.”

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