Analysis of Bangladesh’s Economy
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Published: Wed, 07 Feb 2018
An economic condition marked by the fact that individuals actively seeking jobs remain unhired. Unemployment is expressed as a percentage of the total available work force. The level of unemployment varies with economic conditions and other circumstances.
Unemployment is defined as by the Bureau of Labor Statistics (BLS) as people who do not have a job, have actively looked for work in the past four weeks, and are currently available for work. Also, people who were temporarily laid off and are waiting to be called back to that job are counted as unemployed. People who are jobless and have not looked for work within the past four weeks are removed from the labor force by the BLS and are no longer counted as unemployed. Most people leave the labor force when they retire, go to school, have a disability that keeps them from working, or have family responsibilities. Others may feel they can’t get work, and so stop looking. The BLS calls them discouraged workers. The BLS removes them from both the unemployment statistics and the labor force. However, they are separately reported in the Employment Report. Unemployment is an important statistic used by the government to gauge the health of the economy. If unemployment gets too high, the government will try to stimulate the economy and create jobs with expansionary monetary or fiscal policy. It will also create additional benefits to aid the unemployed until they can find jobs. The BLS measures unemployment through monthly household surveys, called the Current Population Survey (CPS). It has been conducted every month since 1940, as part of the government’s response to the Great Depression. It has been modified several times since then, and experienced a major redesign in 1994. This included a revamping of the questionnaire, the use of computer-assisted interviewing, and revisions to some of the labor force concepts. Nationally, unemployment is caused when the economy slows down, and businesses are forced to cut costs by reducing payroll expenses. Unemployment can also be caused by competition in specific industries or companies. Advanced technology, such as computers or robots, cause unemployment by replacing worker tasks with machines. The consequences of unemployment for the economy are less consumer spending, as workers have less money to spend until they find another job. If high national unemployment continues, it can deepen a recession or even cause a depression. That’s because less consumer spending from unemployed workers reduces business revenue, which forces them to cut more payroll to reduce their costs.
b) Two sectors of the economy growing faster then other sectors
Agriculture is the single most important sector in Bangladesh’s economy. Over 80% of the population (or 70% of the workforce) of Bangladesh is engaged in agriculture. The share of agriculture in GDP has fallen from around 57% in the 1970s to 19% in recent years. Nonetheless, agriculture is still one of the largest economic sectors in Bangladesh. The agriculture sector is also the source of many of the small industrial sector’s raw materials, such as jute, and accounts for 10% of Bangladesh’s exports. In short, agriculture is the driving force behind economic growth in Bangladesh and, as a result, increasing food and agriculture production have always been major concerns of Bangladeshi policy-makers.
Bangladesh’s major crops include: rice, jute, tea, wheat, cane, oilseeds, potatoes, pulses, and spices. Rice is by far the largest, with an average 71% share of the gross output value of all crops. As a result, growth in the agricultural sector essentially mirrors the performance of rice production, although the share of livestock and fisheries has increased steadily in recent years to 22% of the value added in agriculture. Bangladesh’s dependence on food imports and, in particular, food aid throughout the years has been a cause for concern. In 2006-07, agri-food imports in Bangladesh represented approximately $1.9 billion (8% of total imports) and were worth about 9% of total export earnings. Natural disasters (floods in particular) may cause abnormal increases in imports to the agribusiness sector. Government legislation for agricultural products changes with the country’s production and import requirements. For example, the government recently allowed the food import with no tariff at all since there is a significant shortage between demand and the level of local production.
The Bangladesh Agricultural Research Council (BARC) estimates the future requirement for food grains to be about 45 million tones in 2030 (compared to 25 million tones in 2000).Total Bangladesh/Canada agricultural trade was valued at over $265 million in 2007 (January – November), and represented over 32% of total trade between the two countries. Top Canadian agricultural exports to Bangladesh were wheat, valued at $164 million and accounting for over 50% of all agri-food exports, and peas (dried), valued at $70 million or 22% of total agri-food exports. Bangladesh imports large quantities of wheat, as it is a staple of the Bangladeshi diet. Consistent demand in this commodity represents an excellent opportunity for Canadian wheat exporters to increase sales. India is Bangladesh’s largest supplier of agri-food, supplying over 18% of Bangladesh’s agri-food imports in 2003. Bangladesh’s other large agri-food suppliers include Australia and Singapore. Natural disasters pose a constant threat for Bangladesh. The country is particularly vulnerable to sudden floods, cyclones and even droughts. Agriculture growth in 2008 is likely to moderate because of the serious flooding and devastating cyclone that occurred in 2007. The floods and cyclone caused extensive damages to the agriculture sector by affecting crops, livestock, poultry and aquaculture. Production losses due to flooding are estimated at 1.3 million tons, while the November cyclone was also severely damaging. The effect of this year’s flooding and cyclone on agriculture sector could be substantial unless the losses are offset by a bumper boro crop.
Vulnerability to natural disasters and a heavy reliance on annual rains for the main crop performance are the causes of severe fluctuations in food grain production and prices, as well as erratic GDP growth. Losses of both food and cash crops are common occurrences which seriously disrupt the entire economy by precipitating unanticipated food import requirements. Bangladesh has an agriculture-dependent economy with a growing population and one of the world’s lowest land areas per capita. Not surprisingly, the most important issue in Bangladesh agriculture is to enhance and sustain growth in crop production. The most pressing problem is therefore the current state of stagnating yields and declining productivity in a range of food and non-food crops. Projections of food grain supply and demand are consistent in their conclusions that there is a widening food grain supply gap. With negligible scope for area expansion (as most of the arable lands of Bangladesh are already under cultivation) future growth will have to continue to rely on raising productivity per unit of land. For this reason, continuous efforts are being made towards developing new improved seed varieties. It is also felt that the agricultural sector has by no means exploited its full potential for crop production and that there are various opportunities for substantially increasing cropping intensities. Currently only 40 percent of the potential irrigated area is covered by modern varieties and, most importantly, there are wide gaps between the potential and the realized yields for all crops in the country.
Market and Sector Challenges (Strengths and Weaknesses)
The overriding objective of all agricultural policy and development since independence in Bangladesh has been to achieve self-sufficiency in food grains and, in particular, rice production. In reality, what has actually been sought is a substantial acceleration in the growth rate of domestic food production and a decreased dependence on, or elimination of, food aid in the long term. The emphasis on accelerating food production in Bangladesh stems from the country’s excessive dependence on food imports, its precarious external account situation and its perceived comparative advantage in food production.
Although Bangladesh continues to be a net importer of food, importing on average 1.5 million tones of rice annually, it has achieved substantial gains in food grain production during the last two decades. Demand for some agro-based products depends on various climatic factors. Bumper crops may see food imports drop; however, the import of cotton, pulse crops and oilseeds are showing ongoing upward trends. Until the early 1990s, the Trading Corporation of Bangladesh (a government-owned trading house) and the Ministry of Food were the main importers of agro-based commodities. Now, the private sector in Bangladesh has become the largest agro-food importer in Bangladesh. Since 2004-05, the country has achieved an average annual growth rate of around six per cent. Bangladeshi buyers are price-sensitive but are also quality-conscious buyers. Canadian products are well accepted in Bangladesh for their quality. Bangladesh agribusiness opportunities include exporting wheat, oilseeds and pulses. Yearly consumption of wheat in Bangladesh is about 4 million tones. Canadian Wheat.
Canada Western Red Spring is already established in the market due to its price and quality. Major competitors for wheat are from India, Australia, the US and the EC.Local production of most of the oilseeds has either stagnated or declined in recent years due to climatic constraints and increased cultivation of alternative crops such as wheat and rice. The total yearly oilseed crush is approximately 650,000 tones including 250,000 tones of imported rapeseed/canola. Canadian oil seed exports to Bangladesh have significantly increased in recent years. Australia and France are Canada’s main competitors.Consumption of pulses has been growing faster than local production and has resulted in an increasing amount of pulse crops imported into the country. Canada is the leading supplier of chickpeas to Bangladesh. Canadian yellow peas are gaining popularity in Bangladesh, competing with its nearest rival, the Australian dun peas. Due to the shortage in local production of agricultural commodities, there are no barriers or quotas affecting the import procedure for agro-commodity items in Bangladesh.
The importation of any food item to Bangladesh requires a phytosanitary certificate from the Canadian Food Inspection Agency (CFIA) that includes a fumigation certificate. Under current Canadian law fumigation of commodities can’t be carried out in Canada. CFIA has already launched a bilateral negotiation with the Bangladesh authorities to solve this issue. In the meantime, authorities in Bangladesh have taken a special measure to physically inspect Canadian exported commodities in port and decide their entry after their examination based on the fact that it is free from pests, insects, larva and others. This is an interim measure which was taken until bilateral negotiation leads to a solution.
A radiation certificate is also required with all imports from the Canadian Grain Commission. Pre-shipment inspection through Interdev Testing is mandatory for any export to Bangladesh to certify all Clean Reporting Findings (CRF), except agri-commodities. Local agents/indenters play an important role in the import of agro-commodity products. Both traders and industrial concerns import product through agents. Canadian companies are urged to have local agents handle import facilitation and customer liaison. There are few reputable trading companies in Bangladesh for agro-commodities. In many cases, an agent’s value relates to their operating in specific areas of the country or their dealings with specific customers. Wheat and pulses are imported in bulk containers which are bagged and sold in 40-50 kilogram bags. There are strong government regulations in terms of international trade. Importing is permitted only through irrevocable letter of credit and certain documentations are needed for doing business under this regulated environment. Large suppliers dominate the import of wheat and pulses as they import in bulk, in vessel. However, import in containers has been increasing in recent years, and consequently small and medium importers have flourished. Bangladesh is a founding member of the World Trade Organization (WTO) in which it actively represents the interests of the least developed countries. Bangladesh is also a member of good standing in the South Asia Preferential Trade agreement (SAPTA).
In addition, Bangladesh is a member of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), an organization that seeks to promote economic cooperation between Bangladesh, India, Burma (Myanmar), Sri Lanka, and Thailand. Such agreements tend to facilitate and ease trade amongst these countries and represent connections with all of Bangladesh’s largest trading partners.
Agribusiness has achieved limited success in a few areas including poultry, shrimp, fruits, dairy products, vegetables, wheat and bakery products, medicinal plants, animal feed, flowers and orchids. Other commodities and products including rice, tea, sugar, jute and tobacco have been part of the commercial system of production, but have not shown yet the required dynamism for agribusiness. The largest agricultural sub-sector, rice, is still dominated by a large number of farmers producing for household food security or producing for a small marketable surplus. Scope remains, however, to improve milling, packaging and distribution capacity. Potential for interventions can be at the following levels: Commercialization of production through new products and commodities, such as high value crops, livestock, poultry and fisheries;
Development of forward linkages through improved services, packaging, processing, storage, transport, removal of marketing constraints and opening up of new markets; and Backward linkages through the provision of inputs (seeds, fertilizers, animal feed and agriculture machinery)
* Potential Areas for Exploring Business Opportunity:
* Processing of Potato flakes, pulses and spices;
* Post harvest storage, processing and packaging of fruits and vegetables; and
* Production of organic fertilizer and mixed fertilizer.
a) Full employment
The first definition of full employment would be the situation where everyone willing to work at the going wage rate is able to get a job.
This would imply that unemployment is zero because if you are not willing to work then you should not be counted as unemployed. To be classified as unemployed you would need to be actively seeking work. This does not mean everyone of working age is in employment. Some adults may leave the labor force, for example, women looking after children.
Optimal Unemployment Level
Another definition of full employment would be the ‘optimal’ level of unemployment. In practice, an economy will never have zero unemployment because there is inevitably some frictional unemployment. This is the unemployment where people take time to find the best job for them. Frictional unemployment is not necessarily a bad thing. It is better people take time to find a job suitable for their skill level, rather than get the first job that comes along.
Full Employment and Full Capacity
Another way to think of full employment is when the economy is operating at an Output level considered to be at full capacity. I.e. it is not possible to increase real output because all resources are full utilized. This would be a point on a Production possibility frontier. It can also be shown by AD/AS diagram.
Diagram of Full Employment
In this diagram full employment would be at an output of Y2. Here any increase in AD only causes inflation. In practice it is difficult to know precisely what counts as full employment. Practical reasons make it difficult for every firm to operate at 100% capacity. Optimal capacity may considered to be 85%
Full Employment and NAIRU
Another related measure of full employment is the level of unemployment when the economy is at the NAIRU rate of inflation. This is the level of unemployment with a non accelerating rate of inflation. This equates to the Monetarist view of the Phillips curve. However, the NAIRU could be quite high due to supply side factors such as frictional and structural unemployment.
b)Three different ways in full employment occur and disadvantages
In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so. It is defined either as 0% unemployment, literally, no unemployment (the rate of unemployment is the fraction of the work force unable to find work), as by James Tobin, or as the level of employment rates when there is no cyclical unemployment. It is defined by the majority of mainstream economists as being an acceptable level of natural unemployment above 0%, the discrepancy from 0% being due to non-cyclical types of unemployment. Unemployment above 0% is advocated as necessary to control inflation, which has brought about the concept of the Non-Accelerating Inflation Rate of Unemployment (NAIRU); the majority of mainstream economists mean NAIRU when speaking of “full” employment.
What most neoclassical economists mean by “full” employment is a rate somewhat less than 100% employment, considering slightly lower levels desirable, others, such as James Tobin, vehemently disagree, considering full employment as 0% unemployment. As a young professor I did a paper where I analyzed the optimal unemployment rate,” said Joseph Stiglitz, a professor at Columbia University in New York, who knew Tobin at Yale. “Tobin went livid over the idea. To him the optimal unemployment rate was zero. The Conservative belief that there is some law of nature which prevents men from being employed, that it is ‘rash’ to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years. The objections which are raised are mostly not the objections of experience or of practical men. They are based on highly abstract theories – venerable, academic inventions, half misunderstood by those who are applying them today, and based on assumptions which are contrary to the facts…Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense.
20th century British economist William Beverage stated that an unemployment rate of 3% was full employment. Other economists have provided estimates between 2% and 13%, depending on the country, time period, and the various economists’ political biases. Before Friedman and Phelps, Abba Lerner (Lerner 1951, Chapter 15) developed a version of the NAIRU. Unlike the current view, he saw a range of “full employment” unemployment rates. He distinguished between “high” full employment (the lowest sustainable unemployment under incomes policies) and “low” full employment (the lowest sustainable unemployment rate without these policies).
An alternative, more normative, definition (used by some labor economists) would see “full employment” as the attainment of the ideal unemployment rate, where the types of unemployment that reflect labor-market inefficiency (such as structural unemployment) do not exist. Only some frictional unemployment would exist, where workers are temporarily searching for new jobs. For example, Lord William Beveridge defined “full employment” as where the number of unemployed workers equaled the number of job vacancies available. He preferred that the economy be kept above that full employment level in order to allow maximum economic production.
Long run aggregate supply
The concept of full employment has so far been used in conjunction with the long run aggregate supply (LRAS) curve, where long run potential output is also the full employment level of output. Full employment does not mean that there is ‘zero unemployment’, but rather that all of the people willing and able to work have jobs at the current wage rate. Full employment is the quantity of labor employed when the labor market is in equilibrium.
The following should be understood in discussions of NAIRU: Governments that follow it are attempting to keep unemployment at certain levels (usually over four percent, and as high as ten or more percent) by keeping interest rates high. As interest rates increase, more bankruptcies of individuals and businesses occur, meaning less money to hire staff or purchase goods (the making and distributing of which requires workers, which means jobs). It might also be noted that the main cause of inflation is not high employment, but rather the ability of banks to make money with little to no backing with things of value (commodities such as gold and silver are some examples), thus flooding the market with money and decreasing the value of each dollar already issued in the process, assuming the economy has not kept up to this increase in issued loans. Economists such as Milton Friedman and Dr. Ravi Batra have theorized ways that a modern economy could have low inflation and near full employment (as in close to 100% of those who are not students and are healthy enough to work, and who wish to work at any given point in time), as of yet these have yet to be widely disseminated through the press or introduced by most governments. Paul Martin – former finance minister and past Prime Minister of Canada – once held that full employment could be achieved, yet let go of this idea after gaining power. For more on this see the expose “Shooting the Hippo” by Linda McQuaig, author and former columnist for many of Canada’s top newspapers.
Friedman’s view has prevailed so that in much of modern macroeconomics, full employment means the lowest level of unemployment that can be sustained given the structure of the economy. Using the terminology first introduced by James Tobin (following the lead of Franco Modigliani), this equals the Non-Accelerating Inflation Rate of Unemployment (NAIRU) when the real gross domestic product equals potential output. This concept is identical to the “natural” rate but reflects the fact that there is nothing “natural” about an economy.
At this level of unemployment, there is no unemployment above the level of the NAIRU. That is, at full employment there is no cyclical or deficient-demand unemployment. If the unemployment rate stays below this “natural” or “inflation threshold” level for several years, it is posited that inflation will accelerate, i.e. get worse and worse (in the absence of wage and price controls). Similarly, inflation will get better (decelerate) if unemployment rates exceed the NAIRU for a long time. The theory says that inflation does not rise or fall when the unemployment equals the “natural” rate. This is where the term NAIRU is derived.
The level of the NAIRU thus depends on the degree of “supply side” unemployment, i.e., joblessness that can’t be abolished by high demand. This includes frictional, structural, and classical unemployment.
Ideas associated with the Phillips curve questioned the possibility and value of full employment in a society: this theory suggests that full employment—especially as defined normatively—will be associated with positive inflation. The Phillips curve tells us also that there is no single unemployment number that one can single out as the “full employment” rate. Instead, there is a trade-off between unemployment and inflation: a government might choose to attain a lower unemployment rate but would pay for it with higher inflation rates. In 1968, Milton Friedman, leader of the monetarist school of economics, and Edmund Phelps posited a unique full employment rate of unemployment, what they called the “natural” rate of unemployment. But this is seen not as a normative choice as much as something we are stuck with, even if it is unknown. Rather than trying to attain full employment, Friedman argues that policy-makers should try to keep prices stable (a low or even a zero inflation rate). If this policy is sustained, he suggests that the economy will gravitate to the “natural” rate of unemployment automatically.
Some Economists estimate a “range” of possible unemployment rates. For example, in 1999, in the United States, the Organization for Economic Co-operation and Development (OECD) gives an estimate of the “full-employment unemployment rate” of 4 to 6.4%. This is the estimated “structural” unemployment rate, (the unemployment when there is full employment), plus & minus, the standard error of the estimate. (Estimates for other countries are also available from the OECD.)
Full employability indicates an attempt by government to make people “employable” by both positive means (e.g. training courses) and negative means (e.g. cuts in benefits). It does not necessarily create full employment.
5. The OECD on measuring the NAIRU
Devine, James. 2004. The “Natural” Rate of Unemployment. In Edward Fallbrook, ed., A Guide to What’s Wrong with Economics, London, UK: Anthem Press, 126-32.
Globalization has various aspects which affect the world in several different ways such as:
Industrial – emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to $12 trillion) in the 50 years since 1955. China’s trade with Africa rose sevenfold during 2000-07 alone.
Financial – emergence of worldwide financial markets and better access to external financing for borrowers. By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment. As these worldwide structures grew more quickly than any transnational regulatory regime, the instability of the global financial infrastructure dramatically increased, as evidenced by the Financial crisis of 2007–2010.
Economic – realization of a global common market, based on the freedom of exchange of goods and capital. The interconnectedness of these markets, however, meant that an economic collapse in any one given country could not be contained. Almost all notable worldwide IT companies are now present in India. Four Indians were among the world’s top 10 richest in 2008, worth a combined $160 billion. In 2007, China had 415,000 millionaires and India 123,000.
Health Policy – On the global scale, health becomes a commodity. In developing nations under the demands of Structural Adjustment Programs, health systems are fragmented and privatized. Global health policy makers have shifted during the 1990s from United Nations players to financial institutions. The result of this power transition is an increase in privatization in the health sector. This privatization fragments health policy by crowding it with many players with many private interests. These fragmented policy players emphasize partnerships, specific interventions to combat specific problems (as opposed to comprehensive health strategies). Influenced by global trade and global economy, health policy is directed by technological advances and innovative medical trade. Global priorities, in this situation, are sometimes at odds with national priorities where increased health infrastructure and basic primary care are of more value to the public than privatized care for the wealthy.
Political – some use “globalization” to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. With the influence of globalization and with the help of The United States’ own economy, the People’s Republic of China has experienced some tremendous growth within the past decade. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United States for the position of leading world power.
Informational – increase in information flows between geographically remote locations. Arguably this is a technological change with the advent of fibre optic communications, satellites, and increased availability of telephone and Internet.
Language – the most popular language is Mandarin (845 million speakers) followed by Spanish (329 million speakers) and English (328 million speakers).
* About 35% of the world’s mail, telexes, and cables are in English.
* Approximately 40% of the world’s radio programs are in English.
* About 50% of all Internet traffic uses English.
Competition – Survival in the new global business market calls for improved productivity and increased competition. Due to the market becoming worldwide, companies in various industries have to upgrade their products and use technology skillfully in order to face increased competition.
Ecological – the advent of global environmental challenges that might be solved with international cooperation, such as climate change, cross-boundary water and air pollution, over-fishing of the ocean, and the spread of invasive species. Since many factories are built in developing countries with less environmental regulation, globalize and free trade may increase pollution. On the other hand, economic development historically required a “dirty” industrial stage, and it is argued that developing countries should not, via regulation, be prohibited from increasing their standard of living. The construction of continental hotels is a major consequence of globalization process in affiliation with tourism and travel industry, Dariush Grand Hotel, Kish, Iran
Cultural – growth of cross-cultural contacts; advent of new categories of consciousness and identities which embodies cultural diffusion, the desire to increase one’s standard of living and enjoy foreign products and ideas, adopt new technology and practices, and participate in a “world culture”. Some bemoan the resulting consumerism and loss of languages. Also see Transformation of culture.
* Spreading of multiculturalism, and better individual access to cultural diversity (e.g. through the export of Hollywood and, to a lesser extent, Hollywood movies). Some consider such “imported” culture a danger, since it may supplant the local culture, causing reduction in diversity or even assimilation. Others consider multiculturalism to promote peace and understanding between people. A third position gaining popularity is the notion that multiculturalism to a new form of monoculture in which no distinctions exist and everyone just shift between various lifestyles in terms
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