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Labour Intensive Export Development- Policies and Strategies

Abstract

*

- JAMSHED UZ ZAMAN - MD. ABDUS SAMAD SARKER*

This paper tries to explore the policies and strategies that should be followed in developing export sector of Bangladesh in order to address the unemployment problem. In exploring this, the paper studied other empirical research works and found that as capital is very scarce, Bangladesh must embark upon a labour intensive export development strategy. The paper estimates the elasticity of substitution between capital and labour which also supports this view. Potential export sectors that use more labour have been identified and found that non-traditional and small scale manufacturing sectors are highly labour intensive with tremendous export potentials. Government is also aware of this and has already introduced labour intensive export development policies and strategies. The

urgent need is to implement those policies and strategies in appropriate and efficient manner.

Introduction

Faced with limited resource endowment and domestic market, the nations having abundant labour supply must find ways to help them survive in the competitive world. In the past, the general practice was to forcibly transfer labour force from the surplus areas to the deficit areas for cultivation, plantation and other activities. With the passage of time voluntary international migration seeking employment became a common phenomenon. But in the very recent years, the mobility of the labour force, particularly of the unskilled ones has been seriously impeded. Apart from language and cultural barriers, by strict immigration laws imposed by the labour importing countries. In such a situation, growing labour force has become a serious burden to the economy having already abundant unemployment labour force. To overcome this problem, economists suggest the development of labour intensive export sector, which will not only pave the opportunity of domestic employment of labour force but will also contribute to the movement of resources which do not move readily among

nations and here the movement of goods and services can provide an effective substitute.

Bangladesh is a labour surplus economy with dominance of unskilled labour force. Historically, a large section of the labour force from Bangladesh migrated to the neighbouring countries, as well as to Europe, North America, Near East and the Far East for employment who remitted valuable foreign exchange, which, not only improved the lots of

* The authors are Deputy General Manager and Joint Director, Bangladesh Bank respectively. The views expressed in this article are authors' own.

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those people but also improved the balance of payments position of the country. But with the present phase of infra structural development of the countries in the Near and Far East, the scope of unskilled labour migration may continue to shrink considerably in near future. Therefore, it has become most important for Bangladesh to find out alternative ways to utilize these labour force to overcome difficulties in the days ahead. Generation of employment was identified in all the past five-year plans as the most important means to alleviate poverty, which is also a major target of the current plan and expected to be achieved through adoption of labour intensive production technologies. Our present paper is an attempt towards reviewing the past and on-going policies as well as suggesting ways that will not only boost up export, but will also generate employment opportunity for the vast labour force. With this introduction the rest of the paper has been organised as follows. Section-I highlights the role of export sector in the economic development of Bangladesh. Section-II shows the comparative analysis of capital vs. labour intensive techniques. It discusses elasticity of substitution between capital and labour. It also constructs and estimates an export demand function to assess positive and negative determinants to labour intensive export-led development. Section-III provides a brief review of performance of the export sector in Bangladesh. In Section-IV export strategies of several labour surplus economies have been presented in nutshell and with those experience we have tried to identify possible strategies for Bangladesh. Finally, in Section-V, summary of observations and conclusions have been

placed.

SECTION-I

Role of Export Sector in the Economic Development of Bangladesh

In the quest of her economic development, Bangladesh is striving hard through adopting various policies and strategies but the achievement is much below expectations. This suggests that the country has yet to develop a suitable policy package for sustained growth and development. In this connection, it may be mentioned that ”Export or Perish” has now-a-days become a very popular slogan among the development economists and policy makers showing a causal relationship between export and economic development. R.F. Enury (1967) came to a conclusion that higher rate of economic growth was associated with higher rate of export growth. Shu-chin (1964), Ragnar Nurkse (1961) also tested the hypothesis and found positive correlation between export and economic growth. The economic development of the countries during the nineteenth century and the miraculous success of some of the Asian countries in the current century provide strong evidence of export-led growth. We have also tested this proposition. Towards this end Granger Causality test was employed using data for GDP at constant (1985/86) market prices converted to dollar terms and exports in US dollars

for the period 1980 to 1998. The result as given in Table -1 also supports earlier studies.

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Table 1: Granger Causality Test

(Sample 1980-1998)

Null. Hypothesis

F-Statistic

Probability

GDP is not Granger Caused by Exports(US$)

3.787

0.059

Export (US $) is not Granger Caused by GDP

0.545

0.665

These empirical works and evidences strongly suggest that Bangladesh needs to pursue export oriented development strategy in order to achieve rapid growth and employment The dynamism and efficiency of this sector as well as related activities of the other sectors are, however, limited by the narrow base of the domestic market and lower effective demand due to little ’entitlement’ of the vast majority of the people. To overcome this constraints,

concerted efforts are needed towards the development of export-oriented activities.

Export from Bangladesh stood at 15 per cent of the country’s GDP during 1996-97 which is lower as compared to the neighbouring countries except that of India. The ratio is much lower compared to the newly industrialized countries of the South-East Asia. Table 2 below shows the comparative position of Bangladesh’s export share to GDP with some

selected countries.

Table 2: Share of Exports to GDP in the Selected Countries

Country/Period

1972-73

1980-81

1990-91

1993-94

1996-97

Bangladesh

5.7

6.4

7.3

9.8

15.0

India

3.6

4.5

6.5

10.0

-

Nepal

6.6

6.3

9.5

11.0

24.0

Pakistan

14.3

10.3

15.2

14.0

17.0

Sri Lanka

14.3

24.8

22.1

32.0

35 0

Indonesia

-

 

- 24.0

27.0

26.0

Malaysia

-

 

- 76.0

90.0

92.0

Thailand

-

 

- 27.0

33.0

47.0

Note: Exports include goods and services.

Source: IFS, June, 1998.

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The trade regime of Bangladesh for a considerable period was very much restrictive among the nations considered in Table 2 except India. Although substantial progress has been made in liberalising trade regime of the country, nothing remarkable has been achieved so far as it is evident from the table. Looking at the table it appears that the Indian economy is less open than the economy of Bangladesh as measured by the ratio of exports and imports to GDP. Despite this, India achieved much higher growth and rise in the per capita income compared to Bangladesh presumably, due mainly to large domestic markets. Countries, such as Sri Lanka, Indonesia, Malaysia and Thailand, which removed trade restrictions to a large extent and opened up the economy to the international community experienced a substantially higher rate of growth and per capita income. They, however, faced a financial turmoil recently. It will not be an exaggeration that with the limited domestic market, the restrictive trade policies which discouraged exports were largely responsible for our low growth rate. World Bank in its country report (Report No.11569-BD) also expressed this view and

advocated for a export based policy framework for the country.

SECTION- II

Labour Intensive Vs Capital Intensive Export Development for Bangladesh

In the preceding analysis, the importance of export-led strategy for Bangladesh was highlighted. In this section, we have tried to identify the policy regime that might be most appropriate for the country’s export sector. It is needless to mention that capital is one of the most binding constraints on the development of Bangladesh. Despite vigorous measures domestic savings could not be raised to even 10.0 per cent of the GDP. The availability of foreign capital in the face of changed global economic situation is also in the grip of uncertainty. In this situation, Bangladesh has to find out alternative technique which may

obviously be labour intensive.

Roy(1988) conducted a detailed study on labour intensity and efficiency of capital use in Bangladesh manufacturing industries and came to a conclusion that the ratio of profit to value added in labour intensive industries, is reasonably good. He showed the performances of the labour intensive small industries in terms of capital productivity and profitability. Therefore, there is a strong possibility of employment generation and accelerated growth of output

simultaneously by adopting labour intensive technique of production in Bangladesh.

The policy for labour intensive export development is appropriate so long elasticity of substitution between capital and labour is notable. We have used a Constant Elasticity of Substitution type of production function to estimate the elasticity of substitution between

labour and capital. Our equation reads,

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VA= b 0 {b 1 L -r + (1-b 1 ) K -r } -1§r

( i)

Where,

VA= Value added in the manufacturing sector,

L

= Annual employment of labour in the manufacturing sector,

K

= Value of fixed assets in the manufacturing sector,

= Substitution parameter.

Data for value added, fixed assets and employment have been collected from Census of Manufacturing Industries (CMI) and also from Bakht and Bhattacharya (1991). In the CMI, the persons engaged in the units are distinguished in terms of ’all employees’ and ’production workers/operators’. All employees comprise of both salaried employees and production workers. Salaried employees include professional and technical, administrative and managerial, clerical, sales and services workers. Production workers mean those who are engaged directly in production process, including manufacturing, assembling, packing, repairing, etc. (Bakht and Bhattacharya, 1991 ). We have used both the categories of

employment while running non-linear regressions to find the best fit.

Despite deficiencies, we have collected figures of fixed assets in manufacturing sector from CMI. Shortcomings of these data are discussed in Bakht and Bhattacharya (1991). According to them, ”CMI leaves out all of cottage industries and a significant proportion of small industries and even within the stipulated purview it suffers from under-reporting. More importantly, because of delayed inclusion of certain firms in CMI it becomes difficult to ascribe changes in the reported capital stock in a particular year as investment belonging to

that year.” Results of the non-liner regression are given in the following Table.

Table 3: Non-linear Regression Estimates

T-statistic

Variable

Coefficients

1.644

b0

1.186

0.615

bl

7.948E-10

1.393

r

5.067

1.360

l/r

0.199

F=132.224

Adjusted R 2 =0.9776

D.W. =1.587

Having discussed the elasticity of substitution, we may focus our attention on the export sector. Most of the export goods are labour intensive rather than capital intensive. To name some, jute, tea, leather, fishes, ready- made garments and hosiery products, all are labour intensive. The technology intensive products, furnace oil, bitumen, fertilizer and chemicals, newsprint, etc. contribute only a meager proportion to our total export earnings. In sum, our export products, at present are labour intensive. The danger is that labour intensive export sector as some propound, is spectacularly susceptive to price fluctuations and exchange rate volatility. Impact of the volatility and fluctuations is perhaps more on labour intensive exports than on capital intensive ones. This assertion has encouraged us to check historically, whether those factors remained an impediment to export-led development, by formulating and estimating an export demand model for Bangladesh. Trade in invisible and capital flows are much less sensitive to exchange risk and price uncertainties than trade in merchandise in a developing country. Therefore, our analysis is limited to merchandise trade of the country. In spite of the importance of supply factors in the developing countries we have estimated single

equation export demand function ignoring completely the significance of supply of exports.

Following traditional practice (Houthakker and Magee, 1969), we have constructed the demand function by maximizing a CES utility function subject to a budget constraint. By including a proxy for exchange rate volatility and aggregating over all the goods exported and

over all the trading partners, the export demand function can be written as,

log XQ = bb o +bb 1 log R+ bb 2 log WY+ bb 3 EV+c

Where,

(ii)

XQ = Export volume derived as export receipts (million US$) adjusted

index, PX (Base 1979/80)

by export price

R = PX/PW, PX = Export price index (1979/80 =100)

PW= World price index (1990=l00)

WY= World income index (1990=100)

EV = Exchange rate volatility measured either by per centage change in exchange rate

(EV 1 ) or quarterly moving average standard deviation of the exchange rate (EV 2 )

Sample = 1976 to 1996.

Prior to estimating equation, unit root test was conducted to find that all the variables are random walk (Table 4). Although, Augmented Dicky Fuller test is not appropriate for variance or other form of a non- linear transformation, ADF test shows that EV 1 and EV 2 are also random walk. Afterwards we conducted a co-integration regression analysis. Statistical

results of the best fit is reported below.

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Table 4: Unit Root Test

 

First

   

Difference of

Augmented Dicky Fuller Test Statistics

 

Mckinnon Critical Values

Variables

     

1%

5%

10%

 

LXQ

 

-3.02**

-

3.79

-3.01

-2.65

LXV

-2.86*

-

2.68

-1.95

-1.62

LWY

-3.60**

-

3.79

-3.01

-2.65

EV 1

-5.28*

-

4.47

-3.65

-3.26

EV 2

-8.75*

-

4.47

-3.65

-3.26

LR

-3.44**

-3.79

-3.01

-2.65

*

Significant at 1% level.

 

** Significant at 5% level.

 
 

Table 5: Cointegrated Regression Results

 

Intercept

LR

EV 2

R 2

DW

ADF

 

6.603

-1.3576

0.4457

0.33

0.85

-3.0

(18.56)

(-3.28)

(1.805)

Our results show that LXQ, LR and EV 2 form a co-integrated set and that least squares technique will generate consistent estimates for coefficients of equation (ii). Table 5 also shows that price elasticity is more than unity. One implication of this result is that by lowering price we may boost our exports. Further, the table also shows that exchange rate policy that was pursued has some positive accomplishments. Our results further show income

inelasticity of export demand function.

With three or more variables in the co-integration equation, Johansen and Juselius (1990) have shown that there may be more than one co-integrating vectors since there may be more than one equilibrium relationship among three or more variables. To ascertain existence of only one co-integrating vector, Johansen test was conducted. The results do not reject at most

one cointegration vector.

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Table 6: Johansen-Juselius Test

 

Likelihood

5% Critical

1% Critical

Hypothesized No. of CE(S)

Eigen Value

Ratio

Value

Value

0.932

63.49 *

29.68

35.85

None

0.217

7.00

15.41

20.04

At most 1

0.084

1.86

3.76

6.65

At most 2

* Significant at 1% level.

SECTION - III

Review of Export Performance

The Prime objective of economic policy of Bangladesh is to provide employment for the vast labour force of the country, majority of which are unskilled. Therefore, we have to identify the sectors that use more labour and at the same time have export potentialities.

Table 7 below shows the commodity-wise trend of exports from Bangladesh since liberation.

Table 7: Commodity-wise Export of Bangladesh

(In million US$)

Year

1972-73

1979-80

1984-85

1989-90

1993-94

1995-96

1996-97

1997-98

Raw Jute Jute Goods Tea Leather Frozen Food @ Ready-made Garments Naphtha, Furnace Oil Newsprint Chemical Fertilizer Others Total

133.84

148.08

150.81

124.62

57.02

91.00

116.00

10800

179.26

406.85

389.80

331.30

287.00

329.00

318.00

281.00

9.69

34.00

61.02

39.28

38.18

33.00

38.00

47.00

16.18

26.94

69.80

178.87

168.17

212.00

195.00

190.00

3.06

2.99

86.85

137.84

221.00

313.00

321.00

294.00

-

0.67

116.20

609.32

1556.00

2547.00

3001.00

3784.00

-

23.81

20.68

16.86

16.62

11.00

16.00

74.00

2.46

10.66

8.50

2.43

0.36

-

-

6.00

-

-

4.79

17.04

51.37

95.00

104.00

59.00

3.93

19.49

25.98

66.15

428.15

251.00

-

318.00

348.42

382.68

934.43

1523.71

2533.90

3882.00

4418.00

5161.00

@

Includes shrimps, froglegs, fishes

 

Source : Export Promotion Bureau.

 

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It may be observed from Table 7 that earnings from raw jute amidst wide fluctuations reduced substantially from 1972-73 to 1993-94. Earnings from raw jute increased up to 1984- 85 but thereafter, it started declining. However, export performance of raw jute is encouraging in the recent years which is reflected in the export earnings of 1995-96 and onwards. However, export of jute goods although showed a substantial rise of $406.85 million in 1979-80 from the level of $179.26 million in 1972-73, amidst fluctuations declined to the level of $281.00 million in 1997-98. On the other hand, despite severe competition, export of tea, and leather increased overtime. It may be observed from Table 7 that export of tea increased rapidly and reached to a peak level of $61.02 million in 1984-85. Thereafter the export of tea became very much volatile and export receipts from this commodity remained around $ 40 million up to 1993-94. Although there were a substantial rise in the price of tea in the international market in the recent years, earnings from this item could not be raised to the level of 1984-85. This suggests that there is little hope to significantly expand the share of tea export to total exports in near future. Trends in export of leather, on the other hand, suggests that the relative importance of this item in total export earnings is increasing overtime and there is a lot of possibility to enhance its share in future. Leather exports which was only $16.18 million in 1972-73 increased to $69.80 million in 1984-85 and further to 178.98 million in 1989-90. Although its export recorded some decline in 1990- 91 due to some unfavourable circumstances in the world market, export receipts from this commodity continued to rise till now (Table 7) which suggests that export of leather is more promising given the world demand. Leather-based labour-intensive cottage and small industries have high potential in the country. Not only shoes, toys, bags, belts, jackets, etc. various items having high export demand can be produced substantially at much cheaper cost through the

development of labour-intensive activities.

Export of frozen food added a new horizon in the export regime of Bangladesh. Export of this commodity which was only $3.06 million in 1972-73 reached to a level of $38.23 million in 1979-80. The growth of export of frozen food was rapid up to 1986-87 and thereafter it remained stagnant up to 1991-92. This had been mainly due to decline in world export prices of shrimps and prawns as more efficient producers like Taiwan, Thailand, etc. vigorously entered into the market with much more competitive price compared to Bangladesh. Export receipts of 1995-96 and 1996-97, however, suggests that despite severe competition, Bangladesh can earn a substantial amount of foreign exchange by developing this sector through the application of modem method of production and providing appropriate incentives for its exporters. In 1997-98 export earnings from this sector declined somewhat due to some problems that arose with the importers. However, necessary steps have been taken to remove those problems and it is hoped that export earnings from this sector will continue to show a very spectacular growth in future. This sector is very highly labour

intensive sector and as such the country has large potential to develop it.

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The most striking feature of labour-intensive export regime of Bangladesh is the emergence of ready-made garments. The export receipts from the ready-made garments which was only $ 0.67 million in 1979-80 sharply increased to $116.20 million in 1984-85. From 1984-85 onwards export receipts from this single item showed an unprecedented growth. Labour intensity of this sector is well known for which Bangladesh has already put

all out effort to reap this benefit.

Sectoral trend of export receipts as it is given in Table 8 below shows that the share of jute to total export earnings stood at about 90 per cent in 1972-73 which came down gradually to 7.54 per cent in 1997-98. Similarly, the share of traditional items came down from 97 to only 8.41 per cent in the same period. On the other hand, the share of non- traditional items increased substantially from 3 per cent in 1972-73 to more than 91 per cent in 1997-98. This indicates the possibility of new items to get entrance into the export horizon of Bangladesh. Increased share of manufacturing exports to total export earnings indicates that primary product of Bangladesh is no longer an effective source of export earnings. Therefore, Bangladesh will have to shift the export strategy towards the non-traditional and

the manufacturing items.

Table 8: Trend in the Composition of Export Receipts

(In percentage)

Commodities

1972-73

1978-79

1988-89

1993-94

1997-98

Jute

89.86

69.26

29.33

13.45

7.54

Non-Jute

10.14

30.73

60.67

86.55

92.46

Traditional

97.30

88.32

43.02

14.49

8.41

Non-Traditional

2.70

11.68

56.98

85.51

91.59

Primary products

43.00

38.08

23.28

13.69

9.73

Manufactured Products

57.00

61.95

76.72

86.31

90.27

Source: Export Promotion Bureau.

There are several technical studies on the export elasticities of Bangladesh. Matin (1984) shows that elasticity estimates of traditional items of exports are very low, while that of nontraditional items are very high. Bahar and Samad (1995 ) also show that export elasticity of non-traditional items such as frozen food and ready-made garments are very high. From these analyses we may argue that Bangladesh should increase her efforts to augment the

export of manufactured and non-traditional items.

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Having this analysis, we have to investigate the factor intensity in the activities relating to production of manufactured and non-traditional items because it has importance on employment generation. An employment-output maximization trade-off or simultaneous employment-output maximization estimate is a good solution for this purpose. In this paper we shall not go deep into the matter but simply try to present a descriptive analysis. In

support of our analysis we shall also present the findings of some technical studies.

It is obvious that production of primary products such as jute, tea, etc. requires less capital but more labour and in that sense these are labour intensive. But the trend of export shows that export potentials of these items are very low, due to availability of number of numerous substitutes in the world market. Frozen food is a highly labour intensive activity which has high export potential. Similarly leather and leather products and ready-made garments are very high labour intensive activities (Roy 1988) which have tremendous export potentialities. Roy (1988) also showed that 57 per cent of the small industries are highly labour intensive while 34 per cent are medium labour intensive. Among large industries about 38 per cent are highly labour intensive. From this analysis, it is fair to conclude that Bangladesh should attach high priority to the production and export of non-traditional and

manufactured items.

SECTION - IV

Review of Export Policy of Bangladesh

Export policy of Bangladesh up to 1990 was basically characterized by ad hoc measures adopted on year to year basis. In addition to that, the country experienced a very restrictive and complex set of industrial and trade policies which discouraged the expansion of manufacturing sector including those having high export potentialities. Non-tariff measures, such as, import bans or quantitative restrictions, had been applied to a considerable range of importable items, including primary inputs. Coupled with these, country’s tariff regime continued to discriminate strongly against export production. World Bank estimated that up to FY 1989, the nominal protection ranged between 2.5 per cent to 508.5 per cent and thereafter, despite removal of development surcharge and regulatory duty at the beginning of 1992, it ranged between 2.5 per cent to 352.5 per cent (IBRD, 1993). In 1993, a two- year export policy was announced by the Government which contained a lot of incentive framework. But the fruits of the many of those incentives could not be enjoyed by all the exporters. Moreover, the country’s external competitiveness was seriously hampered due to weak exchange rate management policy. Most importantly, it did not contain any clear-cut objective of employment generation through encouragement of labour intensive export- oriented industries. In short, the weak policy framework of export regime coupled with

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ineffective implementation of announced policies resulted in slowly growing manufacturing sector in Bangladesh which in turn failed to stimulate competitive export oriented sector that

could help generate productive employment for the country’s vast labour forces.

In this backdrop, Go vernment of Bangladesh announced the Five-year export policy for 1997-2003. The policy aims at fostering employment opportunities through increased production and trade, attracting entrepreneur to establish export oriented, particularly labour intensive industries, improving the balance of payment through narrowing down the trade gap with the diversification of exportable and expanding the export base, development of marketability of export items, establishment of backward linkage with export oriented industries and expansion, consolidation and creation of new market for Bangladesh’s

exportable. To achieve those objectives the major strategies to be followed are:

1)

Simplification of export procedures and strengthening export led cooperation of the

Government. More integration of the private sector with the export related activities.

2) Encouraging establishment of backward linkage industries through reactivating the process of utilization of locally available raw materials. Providing more facilities to

establish new ready-made garments factory having higher value addition.

3) Establishment of manufacturing units of leather products in clusters to provide increased employment. Expediting the process to BMRE of existing wet blue leather processing

tanneries and help them to switch over to finished leather process and export.

4)

Expediting the expansion of improved traditional/semi-intensive method of shrimp cultivation for enhancing export of shrimps;

5)

Initiating measures to improve quality, increase productio n and expand markets for exportable agricultural produces;

6) Undertaking activities for enhancing export of computer software, engineering consultancy and services. Duty on import of computer has been totally withdrawn. Arrangement has been made to establish an information technology village to develop

7)

infrastructure of the export of computer software.

Developing and expanding infrasturctural facilities within the country for exports trade.

The government also identified some items for crash programme in the export sector. Toys, baggage and fashion goods, electric items, leather goods, diamond cuttings and polishing, jewelry, silk fabrics, stationary items, cut and artificial flowers and orchid, gift items, vegetables and engineering and consultancy services are included in this programme. In order to boost production and promote export of these crash programme items, assistance shall be provided for further development, market promotion, bank credit on easy terms, import of raw materials, consignment sale, duty drawback/bonded warehouse and for

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securing joint venture partners. To provide incentive for the production of labour intensive export items a package of incentives including financial, fiscal and institutional has been developed. These include credit facilities like concessional credit for semi-intensive cultivation of shrimp, small and cottage industries and easy term loans for leather sector. These have been done so that resources are normally diverted towards the production of labour intensive exportables. Government also set up various committee forum and task forces to oversee the problem associated with export and accordingly solve those without any

delay.

A close look into the export policy of 1997-2002 reveals that it contains a lot of elements of labour-intensive export development strategy and incentive framework. What is more important to note is that the current export policy contains the clear-cut objective of employment generation through encouragement of labour intensive export-oriented activities. Although more is to be done, the noble attempt towards the gradual liberalisation process and the removal of anti-export, anti-private sector bias as it is evident from export policy framework will certainly boost up labour-intensive export sector The concerned authority

should be committed to implement the policy without any negligence.

SECTION-V

Observations and Conclusions

The policy of labour-intensive export development requires a set of rules that augment labour intensive production of exportable and encourage the exporters to export more. The successful macro-economic stabilization of the country during the current years provides the foundation for boosting up production and export. The country’s vast labour force can be used as a dynamic source for this purpose. Japan is an ideal example in this respect. With poor resource base, Japan emerged as one of the major economic powers of the world by utilizing the country’s labour force (Henderson and Poole, 1991, p. 632). Bangladesh can also utilize this opportunity, although it would not be an easy task. However, to traverse this

difficult path we recommend the following measures.

1. Labour market reform is an essential element for ensuring labour intensive export growth. The existing labour market of Bangladesh is characterized by pervasive politicization of labour disputes, weak labour-management relationship, frequent strikes and lock-outs, absence of correlation between wage and productivity, in many cases, particularly in private sector employment, lack of job security and absence of safety nets for displaced workers. In such a situation, labour-intensive export development would be a far reaching goal and hence a very effective reform should be introduced in this sector. Towards this end, the steps needed to be taken are: establishment of corporate

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partnership between management and labour to promote industrial relation, continuation of the review of labour laws, regulations and labour market, collection of labour market information regularly to design effective strategy with a view to maximizing employment and output, abolition of minimum wage to make it commensurate with the

productivity level, etc.

2. The tariff level should be lowered to reduce input costs for export oriented industries. The existing level is high compared to that in the newly industrialized countries of the

East Asia.

3. In formulating exchange rate policies, development in the country’s labour market should be taken into account. In order to keep export competitive, the rise in unit labour

cost must be offset by appropriate depreciation of Taka.

4. In the context of quota and other types of restrictions, which have become a common phenomenon in international trade, the cure of massive domestic unemployment problem should be sought in the country’s monetary and fiscal policies. These two policies should be designed in such a way that resources are allocated normally in favour of labour

intensive export products.

5. Inadequate provision for working capital loan is a major hindrance for the development of export oriented industries. It is gathered from various sources that in addition to long delay of sanctioning of working capital loan, banks demand additional collateral which many firms, especially the smaller ones are unable to provide. In such a situation, any efforts may be nipped in the bud. Therefore, credit policy should have adequate provision for automatic sanctioning of working capital loan for export-oriented

industries.

6. Government should attach top priority to human resource development. Measures in terms of basic indicators of literacy, education, health and nutrition, human resource development is extremely low in Bangladesh. This has resulted in low efficiency and productivity of the country’s labour force in general. Therefore, all-out efforts should be

given to this end.

7. At this stage, the production of primary and traditional exportable items should not be drastically reduced because this may adversely affect the unemployment situation of the country. Therefore, the suitable policy should be the production of newer exportable items through gradual shifting of labour force from the traditional activities while

creating opportunities for the unemployed.

Finally, vigorous attempts should be undertaken for publicity of the various measures that the Government adopted for the development of the export sector. There are sufficient reasons to believe that in the past Government policy packages relating to export incentives

14

were not well articulated and publicized and, as such, were unable to provide clear and credible signal to the foreign as well as domestic investors. However, the current situation is

quite conducive and the Government has also put its all-out effort to attract the investors.

REFERENCES

Bahar, H. and M. A. Samad Sarker.(1995). ”Performances of Merchandise Exports of Bangladesh During 1985-94.”A paper presented in a seminar held at Bangladesh

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