In the Development of Bangladesh Economy Foreign
remittance Takes Part an Important Role
Chapter -1
Introduction:
The report
entitled “Analysis of Economic Growth and External Sector Behavior” mainly
focuses on the study of the structure of the external sector of Bangladesh and
its impact on GDP. It involves economic models developed to determine the
impact of each sector-Export, Import, Foreign Aid and Remittance, on GDP of
Bangladesh. It also involves an analysis of the behavior of these factors in
three SAARC countries and the application of the regression model developed.
The
economic model was developed based on the past behavior of GDP and the external
sector. It indicated that Remittance is the sector having the most significant
impact on GDP and aid the second most significant. While imports negatively
affect economic growth, exports have played a very important role over the
period.
The
remittance of Bangladesh has been increasing over the last few years. Hence,
its impact on GDP has also been rising. In the span of 34 years export as
percentage of GDP increased from 2.2% to 15.4%. Hence, performance was
moderately good. The economy has been suffering from ever increasing trade deficits,
despite several export promotional measures. Large import payments mainly
account for this problem. Foreign aid shows large fluctuations over the period
Finally, an
analysis was conducted on the behavior of the external sectors in the SAARC
countries using the regression model. Export was found to be the dominant
sector in India, while imports had the minimum impact on GDP. Pakistan was
found to be more dependent on export and foreign aid than on remittance and
import. Sri Lanka’s economy is highly correlated to remittance, aids and
export.
Literature
Review
Several
studies in recent years have focused on the relationship between the external
sector and GDP. Some have developed models to analyze the structure and
behavior of each component of the external sector with respect to GDP while
others have focused on the combined impact of the external sector on GDP and
their trend over time.
One
research by Debapriya Bhattacharya (2006), involved an analysis of the external
sector and GDP trend of Bangladesh to make predictions about the behavior of
each of these sector and their impact on growth in the FY2020.The study
involved the development of economic models for each component based on past
statistics. The researcher concluded that the country has been able to
experience the first transition, transforming from an aid dependent country to
a trade-oriented nation. For the second transition, the country needs to boost
the performance of the external sector. Policy reforms and institution building
measures must focus on promoting export, sustaining remittance and increasing
FDI. The analysis suggested that the country would be able to attain sustained
growth rates only by experiencing a breakthrough in the external sector.
A study
conducted by the World Bank indicated that Bangladesh has been able to
experience an impressive growth of 5.4% over the period 2001-2005.The growth
has been fuelled by large garment exports and remittance inflows especially in
construction and service sectors. Research shows that for future growth, the
country needs to enhance the competitiveness of the domestic firms to function
more effectively in the world market. Reduction in tariffs, which account for
about 50% of tax collection effort, can also ensure future growth. World Bank
(1996) stated that restrictions on imports of sugar, salt and some other
commodities encourage large illegal imports from India. Removing these
restrictions would expose the domestic industries to greater competition,
generate tariff revenues and benefit consumers by reducing prices.
Rashed Al
Hasan (2006) focused on the significance of remittance on the economic
development of Bangladesh. The study was based on past remittance flow of the
country. It involved the determination of various macroeconomic benefits of
remittance to different sectors of the economy such as household, government
etc. Remittances play a critical role in generating foreign exchange reserves
for Bangladesh. To ensure high remittance inflows and productive usage of
remittance, the study indicated that the country needs to establish more
technical institutes, develop new foreign policies, utilize remittances in
productive investment, and create enabling environment to invest Remittances in
Capital Market.
Mohammad
Yunus, Bangladesh Institute of development studies, conducted an extensive
study on the performance of the external sector of Bangladesh and policy
reforms. The study focused on the trend of the external sector components and
policy reforms. The analysis of past statistics indicated that the overall
export promotion strategy in the country and export oriented policy reforms
have remained incomplete and hence ineffective. The tariff structure retains an
anti-export bias, causing distortion in economic incentives. The distortion is
further fuelled by restriction on imports, thus encouraging smuggling.
A research
by the center of policy dialogue (CPD), (2003), stated that the political
economy of foreign aid in Bangladesh has undergone important changes over the
last decades. There has been an important shift in the focus of foreign aid to
Bangladesh, particularly in the context of a gradual reduction in Bangladesh’s
aid dependence. The fact of growing regional export concentration during the
1990s in the markets of the EU and the USA, with a single product, namely the
readymade garments, is now playing a more important role in defining
Bangladesh’s foreign policy than its need for aid. In contrast, during the
1980s Bangladesh’s foreign policy was targeted to ensure an uninterrupted flow
of foreign aid. Today, Bangladesh’s aid dependence is focused on the
international and regional financial institutions.
Background
of the Report
Bangladesh
is a developing economy heavily dependant on external factors. External factors
such as remittances, exports, imports , foreign aid have had major influence on
our economy. Although the impact of these factors has not been uniform and has
changed a lot over time. In the 70s, newly independent country Bangladesh went
through a structural change that was largely propelled by foreign aid. But in
the later years Bangladesh economy has made transition from aid dependence to
trade dependence. This study has looked in details of these factors and its
impact on our economic growth. We have determined the economic growth on
respect of Real GDP growth. Among these four factors export and import directly
affect the GDP equation. Remittance allows the recipients to spend it on for
consumption and investment. Foreign aid and grants help the economy to
strengthen specially for underdeveloped countries. This study has also compared
the trends and level of its impact on GDP with three other SAARC countries. The report adds that future growth of
Bangladesh will depend on promoting export, sustaining remittances, and
triggering export. Bangladesh will require a breakthrough in the performance of
the external sector. According to the report, the key to the breakthrough lies
in effective integration of Bangladesh’s economy with the global economy which
will ultimately depend on the ability of political leadership to undertake
necessary policy reforms and institution building measures.










