This is a graph of the GDP per capita of India, Pakistan, and Bangladesh. In 2000, Bangladesh's GDP per capita was nearly half of that of Pakistan and 75% of that of India.
After 20 years, Bangladesh has surpassed Pakistan and stands at 80% of that of India. This has been achieved by consistent economic growth. And the gap with India may even reduce.
In 2020, India’s GDP fell by 8%.
Meanwhile, Bangladesh’s GDP grew by 3.8%. Along with economic indicators, Bangladesh’s progress in social indicators has been impressive too. On life expectancy, infant mortality rate, and fertility rate, Bangladesh is doing better than India and Pakistan. In the past three decades, Bangladesh’s poverty rate shrunk to 14% from the previous 40%.
Since 1975, Bangladesh has been classified as a Least Developed Country by the United Nations, the lowest category in its classification.
However, Bangladesh will graduate from this classification by 2024.
Nobody had expected such progress when Bangladesh gained independence. Soon after Bangladesh's independence, the United States’ Under Secretary of State, Alexis Johnson, infamously said that Bangladesh was an “international basket case.”It means a country that will struggle economically. The New York Times even reported that Bangladesh was a failure. Many experts were skeptical about Bangladesh’s growth, which was overcrowded, possessed limited natural resources, and suffered from famine. But Bangladesh proved them wrong.
How? We’ll discover that in this article.
Bangladesh was liberated from Pakistan in 1971 with the help of Mukti Bahini, an armed military group. It was made possible with support from India. Because of the violence that created Bangladesh, it was a challenge for the government to meet even the basic needs of the citizens.
In 1974, a famine struck that, according to some estimates, killed 1.5 million people.
Moreover, around 10 million Bangladeshis fled to India due to violence. In addition, political instability and military coups worsened Bangladesh’s economic growth. And poverty rose. Thus, Bangladesh had to rely mostly on foreign aid. During the 1980s, the foreign aid it received was 5% of its total income.
However, Bangladesh’s situation started to change. That was due to a combination of 4 factors. The first factor is….Bangladesh used the same formula that many Asian countries have used. That is low-skill manufacturing, especially the manufacturing of garments.
If you visit the world’s best shopping places to buy garments, you’ll surely get your hands on a ‘Made in Bangladesh’ garment. Bangladesh is the 2nd biggest exporter of clothing in the world.
According to Bangladesh Garment Association, more than 10% of Bangladesh's GDP comes from this industry. The sector was virtually non-existent in the 1980s. But in nearly 30 years, the number of garment factories in the country has increased from 384 to more than 4000.
The industry directly employs around 4 million workers and indirectly around 10 million people. Nearly 80% of the workers in this industry are women. And that has made a great impact. The industry employed women in a country where they’re rarely allowed to work outside. This changed the future of Bangladesh along with the lives of its women.
A paper by Rachel Heath and Ahmed Mushfiq Mobarak showed that women working in the garment industry produced fewer kids, married at a later age, and became educated. For example, they found that women's education increased by 50% for those who lived near a garment factory relative to those who didn't.
How did this happen?
Heath and Mobarak suggest two ways. First, researchers say that you need to have a little education and knowledge of math to work in a factory. When people learned about the job opportunities at newly-built factories, they were more likely to get their young girls educated and delay their marriage.
Second, those girls who were already working in factories were sending home money. Hence, the families’ wealth increased and parents spent that money on educating other girls. And the garment industry didn't only help women working in that industry but all women in Bangladesh.
For example, World Bank has shown that the garment industry decreased the female-male wage gap i.e. the difference in wages of male and female workers for the same job.
Financial freedom was the major way by which Bangladesh promoted women’s empowerment. It means that women have completed control over investments. They used various traditional sources for investment. And a major asset class, an asset class that is relevant to date, is gold.
The government shouldn’t be credited solely for the social and economic development of the country. The NGOs of the country played a major role too. BRAC and other such popular NGOs fulfilled the medical and financial needs of people, built schools, and led several public-health campaigns.
Arvind Subramanian, India's ex-Chief Economic Advisor, calls this model for development unique. He says that, normally, democratic states aim to remain popular by providing the services that citizens need. If the government hands this responsibility to other organizations, it will likely lose elections and a mode of corruption too.
For example, in India, research has shown that road construction is a popular way of taking bribes for politicians.
The politicians give the contract to a contractor who offers a bribe in return. He suggests that as other organizations become more effective at providing education and healthcare, the government becomes more fearful. He says that this hasn’t been seen in the case of Bangladesh. He also explains. He says that the condition in which Bangladesh was created-in violence and poverty-made the government weaker.
When the government couldn’t fulfill the basic needs of the citizens, several NGOs popped up. The 2nd explanation is that Bangladesh’s tax to GDP ratio is relatively low. And in such a scenario, where the government can’t even collect enough tax, how come it builds schools and other infrastructures? Thus, the NGOs took to this task.
And the NGOs excelled at performing their duties. Research has shown that they improved the condition of children, increased women empowerment, provided access to toilets, and spread awareness about health among poor women.
Finally, Bangladesh has been helped by a balanced foreign policy.
When the demand for the creation of Bangladesh increased, geopolitics grew complex. India and the Soviet Union exerted their influence from one side while the US and Pakistan from another.
In modern times, Soviet Union has been replaced with China.
Despite the challenging environment, Bangladesh has managed to create a foreign policy to its benefit. First, foreign aid. Even though the US opposed the formation of Bangladesh, it has provided a substantial amount of foreign aid to Bangladesh.
Second, remittances.
What are remittances?
Remittance is the money that workers who work in another country send back to their houses. Bangladesh receives nearly 6% of its GDP in remittances. More than 50% of these remittances come from the Middle-east, where Bangladeshis work as construction workers, cooks, drivers, tailors, waiters, salespeople, etc.
A World Bank report found that households, where a member is working overseas, have higher income and savings. It’s because these families use the money in productive ways like food, purchasing land, and repaying loans. Research has shown that remittances have made a positive impact on Bangladesh's economy.
Third, its foreign policy helped Bangladesh sell garments and other products in developed countries. It even avoided what some economists called the ‘aid curse’. It means that a country receiving high foreign aids fails to develop. Because the country starts to depend on foreign aids and corruption makes its condition worse.
Arvind Subramanian and Raghuram Rajan found in a research paper
that foreign aid can hamper the growth of the manufacturing sector
because it makes a country's exchange rate stronger, making exports difficult.
However, Bangladesh overcame this problem. Subramanian says that it was because Bangladesh gained access to foreign markets.
What does it mean?
When a country exports goods to another country, usually, a duty is imposed on those goods. This increases the price of the goods and the consumers avoid buying them.
However, through trade agreements, several developed countries remove duties from the goods exported by poor countries. And Bangladesh benefited from this. Bangladesh has progressed a lot in a short period. But the formula that Bangladesh has been using might not be effective in the future. Many have warned that Bangladesh is way too dependent on its garment industry.
In an event like the COVID-19 pandemic, when people stop buying clothes and export becomes difficult, the garment industry and the entire economy have to suffer a huge loss. Garments contribute 80% to Bangladesh's total exports, which is high.
Thus, experts have suggested that the country should promote other industries. The pandemic isn’t the only reason.
Bangladesh's duty-free access to developed countries could end soon because Bangladesh was entitled to it as it was a Least Developed Country. Once it graduates from this category, it will have to pay duties like other countries.
Moreover, robots might replace workers in the garment industry.
According to estimates, around 60% of the jobs in Bangladesh's garment industry could be lost due to automation. In addition, many workers in the industry are still underpaid and they work in unsafe conditions. This became most obvious in 2013. A building housing garment factories collapsed and killed more than a thousand people.
Although there has been some improvement after the incident, many still work in unsafe conditions. Apart from economic challenges, Bangladesh is facing two other challenges. The country has progressed well economically but its political freedom has slumped.
Many journalists, activists, and political leaders have been threatened, jailed, and even killed in the country. With such control from the government, Bangladesh’s growth in the long term might be hampered.
The last challenge, and perhaps the biggest it faces is climate change. Between 2000 and 2019, Bangladesh was the 7th most affected country in the world from extreme weather. Floods and cyclones are becoming increasingly common in the country. Like we saw during Cyclone Fani. Poor Bangladeshis will suffer from this the most. They have to evacuate their houses due to climate change and migrate to cities where they get menial jobs.
Despite these challenges, there is a lot to learn from Bangladesh’s journey, where it ended up proving many people wrong. And if there is one lesson for India, it is this graph. While more women in Bangladesh are entering the workforce, the opposite is happening in India. We discussed this issue in our recent articles.
If India wants to improve its economic development, more and more women need to get involved in the formal economy. And if that were to happen, we may see a substantial rise in this graph for India too.
So, I hope you guys liked the article. Let me know in the comment section how you felt about it.
