What Is An Economy?

What Is an Economy?
An economy is the large set of inter-related production and consumption activities that aid in
determining how scarce resources are allocated. The production and consumption of goods and
services are used to fulfill the needs of those living and operating within the economy, which is
also referred to as an economic system
Bangladesh Economy
With a continued average economic growth nearly 7% in the last ten years (2008-2018),
Bangladesh now proudly stands as an emerging trade and investment destination. The steady
growth in export business, hard-working labour force and committed entrepreneurs supported by
the pro-business, pro-investment policies of the Government are leading Bangladesh towards the
line of global business competency. The country’s unequivocal position for peace and harmony,
regional stability, cooperation, economic development through international and regional trade
with its trade partners and an increasing flow of remittance by expatriate Bangladeshis living
across the world have helped the country achieve and retain the impressive economic status. In
FY 2017-18, GDP growth was 7.86 % and it is expected to grow around 8.25% in the FY 2018-
19. A strong domestic demand, high export growth and continued expansion of infrastructural
facilities attributed to the accomplishment of accelerated growth.
International Monetary Fund (IMF), in its World Economic Outlook, 2018, has ranked
Bangladesh as the 44th largest economy in the world in terms of nominal GDP in 2017 and 32th
in terms of purchasing power parity. The country registered a gross domestic product of US$ 274
billion in FY 2017-18 while it was only US$72 billion in 2005-2006.
The real per capita income stands at US $ 1,752 in 2018 (in real terms). In Bangladesh, a strong
middle class is close to 18 % of the entire population. Due to emerging middle class and in
general better income level of common people, domestic demand is growing and that becomes
an important driver of economic activity. Bangladesh has now emerged as an important
manufacturing base for textile products, pharmaceuticals, finished leathers, light and medium
industries, IT and shipbuilding. While world trade was severely disrupted by the global recession
in recent past with exports of most countries declining sharply, the export of Bangladesh shows
satisfactory growth. Bangladesh has emerged as the second largest exporter in the world apparel
market and is also doing exceedingly well in the exports of finished leathers and leather goods,
frozen foods, jute and jute goods, pharmaceutical products, light engineering products and small
ocean-going vessels. In 2017-18, Bangladesh posted US$ 40.2 billion export earnings, while at
the corresponding periods the country registered import bills of US$ 44.5 billion. Most of the
items in the import list are petroleum products, capital goods and industrial raw materials.
Bangladesh has also attained a satisfactory foreign currency reserves in recent months which
stands at US$33.41billion in the fiscal year 2017-2018. Remittances sent by Bangladeshi
expatriates totalled US$15 billion in 2017-18 financial year, also forms a very important pillar of
the country’s economy. The Foreign Exchange Reserve was US$ 32.94 billion in FY 2017-18
Bangladesh experienced a satisfactory FDI in last five years. World Investment Report 2017
ranked Bangladesh 16th among 74 FDI-recipient countries with a record US$ 2.34 billion FDI
inflow in 2017. This is the third time Bangladesh’s FDI has exceeded the billion-dollar mark in a
single year. Standard & Poors latest credit rating for Bangladesh stands at BB-. Moody’s rating
for Bangladesh sovereign debt is Ba3. The transfer and convertibility (T&C) assessment remains
‘BB-‘.
Bangladesh Government’s twin policy initiatives--‘Vision 2021’ and ‘Digital Bangladesh’ envisage
Bangladesh becoming Middle-Income country by 2021 and a developed country by 2041. The World
Bank upgraded Bangladesh a Lower Middle-Income country in 2015 and projected to be one of the top
30 economies in the world by 2030. In the year 2018, the UN Committee on Development Policy (CDP)
declared Bangladesh’s legibility for graduation from LDC to Developing country.
Economy
Bangladesh’s heavy dependence on agriculture has long contributed to seasonal unemployment

among rural farmworkers, as well as to a generally low standard of living in many areas. To
counteract this imbalance, a policy of industrialization was adopted in the mid-20th century.
During the period of Pakistani administration (1947–71), priority was given to industries based
on indigenous raw materials such as jute, cotton, hides, and skins. The principle of free
enterprise in the private sector was accepted, subject to certain conditions, including the national
ownership of public utilities. The industrial policy also aimed to develop the production of
consumer goods as quickly as possible in order to avoid dependence on imports.
. The Pakistani administration established new types of autonomous corporations to deal with industrial
development, electricity, water and sewerage management, the development of forest industries, and
road transportation. In 1972, however, the government of the new, independent Bangladesh
implemented socialist policies, nationalizing these corporations and establishing several new
corporations to manage the nationalized enterprises. Hasty change, coupled with the inexperience of
those placed in charge of the corporations, produced widespread disruptions, and industrial production
nearly came to a halt. In 1973 the government launched a five-year development plan (the first of a
series of such plans that have guided the country’s economy into the 21st century). The policy of
nationalization was gradually revised and was replaced by a 19-point program announced in 1979 that
emphasized greater productivity and efficiency. In an effort to encourage private investment,
Agriculture and fishing
Bangladesh has remained largely agricultural, with nearly half the population employed in this
sector in the early 21st century. Rice is the predominant agricultural product, but jute and tea,
both of which are key sources of foreign exchange, also are important. Indeed, the country is one
of the world’s leading suppliers of raw jute. Other major agricultural products include wheat;
pulses, such as peas, beans, and lentils; sweet potatoes; oilseeds and spices of various kinds;
sugarcane; tobacco; and fruits, such as bananas, mangoes, and pineapples. The country also is a
leading producer of goat milk and goat meat.
Bangladesh: tea pickerTea picker in the Sylhet locality, Bangladesh.Frederic Ohringer—Nancy Palmer
Agency/Encyclopædia Britannica, Inc.
Agriculture was at one time wholly dependent upon the vagaries of the monsoon; a poor
monsoon always meant poor harvests and the threat of famine. To reduce the risk of crop failure
as a result of such adverse weather conditions, a number of irrigation projects—including the
construction of dams—have been undertaken to control floods and to conserve rainwater for use
in the dry months. Among the most important of these initiatives have been the Karnaphuli
Multipurpose Project in the southeast, the Tista Barrage Project in the north, and the Ganges-
Kabadak Project, to serve the southwestern part of the country. Economic planning has
encouraged double and triple cropping, intercropping, and the increased use of fertilizers.
The rivers of Bangladesh are particularly amenable to breeding and raising fish, and aquaculture
is the source of more than two-fifths of the country’s fish yield. However, the rivers and seacoast
also offer opportunities for open-water fishing, mostly in the estuaries of the Bay of Bengal.
Among the varieties of fish caught are the marine rupchanda, or pomfret, and the freshwater
hilsa, a relative of the shad.
Meghna RiverBoat on the Meghna River, a watercourse particularly amenable to fishing and
aquaculture.Alaminnayemhang
Resources and power

A major obstacle to the economic development of Bangladesh has been a general lack of mineral
resources. The country’s first oil well, near Sylhet, was established in 1986, but petroleum in
marketable quantities has not been struck anywhere in Bangladesh. Natural gas is used mainly in
the manufacture of fertilizer and for thermal power. More than half the proven gas reserves are in
the Comilla area, and nearly all the rest are in Sylhet.
Some deposits of coal have been found in northwestern Bangladesh in the Rajshahi area. The
thickest seams are located at relatively inaccessible depths of 3,000 to 3,500 feet (900 to 1,000
metres). Smaller deposits of coal exist in northwestern Sylhet. The Chittagong Hill Tracts
contain some brown coal and lignite. Peat deposits exist in several places, but some of the beds
remain underwater for half the year, making extraction difficult. Limestone is found in the Sylhet
and Chittagong areas. Radioactive minerals have been detected in sand deposits along the
beaches south of Cox’s Bazar.
Bangladesh’s electricity is produced by thermal and hydroelectric processes. The main source of
hydroelectricity is the Kaptai Dam in the Chittagong Hill Tracts.
Manufacturing
Because the export of raw jute is not highly remunerative, efforts were made under the Pakistani
administration to establish mills to produce and export jute products and thus earn foreign
exchange. About 45 percent of the jute produced during that period was processed in the
territory; the balance was exported raw. After independence, jute and jute products remained an
important source of the country’s foreign exchange earnings. However, the clothing industry
expanded rapidly in the late 20th century, and by the early 21st century the export value of
garments, hosiery, and knitwear had far surpassed that of jute manufactures. Frozen fish and
shrimp also became major exports.
The bamboo in the Chittagong Hill Tracts and the various softwood trees growing in the
Sundarbans provide excellent raw material for papermaking. There are paper mills at
Chandraghona, Chhatak, and Paksey, as well as a paper and board mill at Khulna.
Bangladesh has fertilizer factories, textile mills, sugar factories, glassworks, and aluminum
works. It also has cement factories, located at Chhatak, in the Sylhet area. A shipyard was
opened at Khulna for repairing and reconstructing ships, and a steel mill is located at Chittagong.
By far the most important cottage industry centres on the production of yarn and textile fabrics—
mostly coarse and medium-quality fabrics. Another cottage industry produces cigarettes known
as bidis. Carpets, ceramics, and cane furniture also are products of cottage industries.
Finance
The Bank of Bangladesh serves as the country’s central bank. Upon independence, Bangladesh
nationalized all domestic banks, though much of this nationalization was reversed beginning
with a privatization program in the 1980s. Since the establishment of Grameen Bank in 1976 and
through the efforts of its founder, Muhammad Yunus, Bangladesh has served as a pioneering
centre for microfinance, a means of extending credit in the form of small loans to nontraditional
borrowers, such as the poor. In the 2010s more than 30 million Bangladeshis were members of
microfinance institutions.
Trade
Total annual imports typically exceed exports. Imports come principally from China and South
Asia, while Bangladesh exports goods primarily to Europe, the United States, and Canada. Major
exports include garments and knitwear, agricultural products, seafood, jute, and leather.
Transportation
Central to the country’s transportation system are networks of waterways, roads, and railways,
the last built mostly during British rule. Inland waterways are important, providing low-cost
transport and access to areas where land transport would be costly. They carry most of the
domestic and foreign cargo. Chief seaports are Chittagong and Mongla, and there are
international airports at Dhaka and Chittagong, as well as several other airports offering domestic
service.
The forms of transport used on Bangladesh’s roads range from automobiles and buses to the
bullock cart. Two-wheeled horse-drawn jigs and bullock carts are still used, primarily in the
north in Rajshahi. Town and city dwellers both rely largely on the cycle rickshaw and on two
types of three-wheeled vehicles, known locally as auto and tempo. The lightweight cycle
rickshaw, which can easily be used on unpaved roads, is the most popular vehicle in towns and
villages. The annual inundations that submerge most of the rural roads necessitate the use of so-
called country boats—flat wooden boats that are hand-propelled by means of poles or long
paddles.
Dhaka, Bangladesh: rickshawsRickshaws and auto rickshaws in the streets of Dhaka, Bangladesh.Pavel
Rahman/AP
Government and society
Constitutional framework
While Bangladesh’s constitution of 1972 specifies a parliamentary form of government under a
prime minister and a president elected by a national assembly, its implementation has been
interrupted by coups. In 1975 a military coup led to a regime of martial law, and, though the
form of government that followed was a mixture of presidential and parliamentary systems,
power effectively remained with the army. The country experienced additional upsets and
periods of martial law in the 1980s, but in 1991 a parliamentary system was restored, with a
president as head of state and a prime minister as head of government.
The parliament of Bangladesh, called the Jatiya Sangsad (House of the Nation), is a unicameral
entity consisting of some 350 seats, most of which are filled through direct election. The
remaining seats are reserved for women; these members are elected by the parliament itself.
Legislators serve five-year terms. The parliament elects the president, who also serves a five-
year term, with a two-term limit. The president then appoints the leader of the legislative
majority party (or coalition) as prime minister.
Bangladesh: Jatiya Sangsad Bhaban (parliament building)Jatiya Sangsad Bhaban (parliament building),
Dhaka, Bangladesh; designed by Louis I. Kahn, completed 1983.© Hemera/Thinkstock
Local government
Between the early 1980s and the early 1990s, local government in Bangladesh underwent a
large-scale administrative reorganization to decentralize power. The resulting structure consisted
of several major divisions, each of which was subdivided into a number of districts, called zila.
These districts were parceled further into smaller units, called upzila and thana. Bangladesh now
consists of 8 divisions, more than 60 districts, and more than 500 upzila and thana. Villages—the
smallest unit of government—numbered in the tens of thousands and were grouped into unions
beneath the upzila and thana.
Local government in both rural and urban regions is primarily in the hands of popularly elected
executives and councils. Each division is headed by a commissioner. Executives at the district
and thana levels are assisted by various professionals appointed by the national government, as
well as by their elected councils.
Justice
Bangladesh has maintained essentially the same judicial system that was in operation when the
territory was a province of Pakistan and that owes its origins to the system in operation under the
British raj. The 1972 constitution divided the Supreme Court of Bangladesh into Appellate and
High Court divisions and mandated a complete separation of the judiciary and executive
branches of government. During the subsequent authoritarian regime, however, the power of the
Supreme Court was greatly reduced. In 1977 a Supreme Judicial Council was established to draw
up a code of conduct for Supreme Court and High Court judges, who may be removed from
office by the president upon the council’s recommendation.
Judges from the High Court may go on circuit for a portion of the year to hear cases from lower
courts in other parts of the country. Those lower courts include district courts, sessions courts,
and several types of magistrate courts. The magistrate courts handle the vast majority of criminal
cases.
Health and welfare

Bangladesh has many government hospitals and rural health centres. Tuberculosis, cholera, and
malaria continue to pose threats to public health, and since about 2000 outbreaks of dengue fever
have been a concern as well. However, an effective approach to the treatment of cholera and
tuberculosis has been developed by research laboratories and hospitals in Dhaka and Comilla,
and the incidence of malaria has been reduced by a malaria-eradication program in which
swamps and marshes are regularly sprayed with insecticides. Historically, leprosy also was a
serious problem in Bangladesh. In the late 20th century, however, the government took
aggressive measures to eradicate the disease, and within less than a decade, leprosy had virtually
disappeared from the country.
Social services are provided by private agencies and government departments. These services
include, among others, community development projects, schools for handicapped children,
youth centres, orphanages, and training institutes for social workers. A family-planning program
inaugurated in the late 20th century has helped to control population growth.
Education
The foundation of the educational system in Bangladesh was laid down during the period of
British rule. The system has three levels—primary, secondary, and higher education. Primary
and secondary education are both compulsory, though universal participation has remained more
an ideal than a fact. Primary education consists of eight years, while secondary education lasts
four years. Secondary education is divided into a lower level and a higher level, and public
examinations are held at the conclusion of each level of schooling. Schools in cities and towns
are generally better-staffed and better-financed than those in rural areas.
There are hundreds of colleges, most of them affiliated with one of the larger universities, such
as the University of Dhaka (1921), the University of Rajshahi (1953), or the University of
Chittagong (1966). Other prominent institutions include Jahangirnagar University (1970) on the
outskirts of the capital, the Bangladesh Agricultural University (1961) at Mymensingh, the
Bangladesh University of Engineering and Technology (1962) at Dhaka, and the Islamic
University (1980) at Kushtia. Medical education is provided by several medical colleges and an
institute of postgraduate medicine at Dhaka. Each college or institute has a full-fledged hospital
attached to it.
For vocational training Bangladesh relies on several engineering colleges and a network of
polytechnic and law colleges. In addition, an array of specialized colleges are dedicated to
training students in areas such as the arts, home economics, social welfare and research, and
various aspects of agriculture.
Literacy improved significantly in the 21st century: less than half of the population could read
and write at the beginning of the century, but by the late 2010s more than two-thirds were
literate.
Cultural life
The Bengali language, Islamic religion, and rural character of Bangladesh all serve to unify the
country’s culture to a considerable degree. Although some regional variation occurs across the
Bengali community, cultural differences between ethnic, religious, and social minorities and
between rural and urban populations are much more salient.
Daily life and social customs
The typical household in Bangladesh, particularly in the villages, includes several generations of
extended family. Most marriages are arranged by parents or other relatives, but increasing
numbers of educated men and women choose their own partners. Custom and religion among
Muslims require that a dowry be offered by the husband to the wife, but it is usually claimed
only in the event of separation or at the husband’s death. Divorce is permissible among Muslims,
and Muslim law (Sharīʿah) permits limited polygyny, although it is not widespread. Hindus may
obtain a separation by application to a court of law.
The main festivals in Bangladesh are religious. The two most important are Eid al-Fitr, which
comes at the end of Ramadan, the Muslim month of fasting, and Eid al-Adha, the festival of
sacrifice, which falls on the 10th day of the last month of the Islamic calendar. On both
occasions families and friends exchange visits.
While rice, pulses, and fish continue to constitute the staple diet of Bangladeshis, shortages of
rice since World War II have forced the acceptance of wheat and wheat products as alternatives.
Meat, including goat and beef, also is eaten, especially in the towns. At weddings and other
festive occasions, seasoned rice (pilau) accompanies highly spiced meat dishes and curries.
Bangladesh is noted for a large variety of milk-based sweets.
The lungi (a length of cloth wrapped around the lower half of the body, comparable to the
Malaysian sarong) with a short vest is the most common form of male attire in the countryside
and in the less-wealthy sections of urban settlements. Men of the educated classes prefer light
cotton trousers called pajamas (from which the English word originates) and a kind of collarless
knee-length shirt known as a panjabi. On more formal occasions they dress in a modification of
the Western suit. The traditional sherwani and churidar, calf-length tunic and close-fitting
trousers, are still seen at weddings, where they are worn along with the turban. The sari is
common among women, but girls and younger women, especially students, prefer the shalwar
kamiz, a combination of calf-length shirt and baggy silk or cotton trousers gathered at the ankles.
The arts
Literature
The Bengali language began to assume a distinct form in the 7th century ce, and by the 11th
century a tradition of Bengali literature had been established. Litterateurs received official
patronage under both the Pala (8th to 12th century) kings and early Muslim rulers; under the
Senas (11th and 12th centuries) and Mughals (early 16th to mid-18th century), however, they
were generally unsupported. Nevertheless, Bengali language and literature thrived in various
traditions of music and poetry that were practiced outside the court, laying the foundation for the
so-called “Bengali Renaissance” of the 19th century. The renaissance was centred in Kolkata
(Calcutta) and led by Ram Mohan Roy (1772–1833); its luminary poet, Rabindranath Tagore
(1861–1941), composed the national anthems of both India and Bangladesh and was awarded the
Nobel Prize for Literature in 1913. In its early years the movement espoused the virtues of
Western education and liberalism, and it was largely confined to the Hindu community.
Music, dance, and theatre

There are four main types of music in Bangladesh—classical, light-classical, devotional, and
popular—which may overlap in some cases. Classical music has many forms, of which the
dhrupad (Hindustani devotional songs) and the related, shorter form called khayal are the best
known. Devotional music also is represented by qawwali and kirtana, vocal genres that are part
of the common musical heritage of the subcontinent. It is, however, in the field of local
nonclassical popular music that Bangladesh is most prominent. The forms known as bhatiali,
bhawaiya, jari, sari, marfati, and baul have no real equivalents outside the country. The vigorous
spontaneous style of these musics generally distinguishes them from classical genres.
Apart from such classical dances as kathakali and bharata natyam—forms that are popular
throughout the subcontinent—unique indigenous dances have developed in Bangladesh. Among
the most widespread of these are the dhali, baul, manipuri, and snake dances. Each form
expresses a particular aspect of communal life and is danced on specific occasions.
Improvisation has been a core component of both classical and nonclassical music and dance.
With the increasing commercialization of the arts, however, improvisation has been on the wane.
Although some of the performing arts are learned informally, others are taught formally at music
and dance academies. Two of the oldest and most prominent of such academies are the Bulbul
Academy for Fine Arts and the Nazrul Academy, both in Dhaka.
All towns and most villages have cinema houses. Plays are occasionally staged by amateur
groups and drama societies in educational institutions and are broadcast regularly on radio and
television. Musical concerts, though not as popular as the cinema, are well attended. Especially
popular in the countryside is jatra, a form of opera that draws on local legends.
Visual art and architecture

Painting as an independent art form is a relatively recent phenomenon in Bangladesh. The main
figure behind the art movement was Zainul Abedin, who first attracted attention with his
sketches of the Bengal famine of 1943. After the partition of Pakistan from India in 1947, he was
able to gather around him a school of artists who experimented with various forms, both
orthodox and innovative.
The historical prevalence of Islamic arts in Bangladesh is especially evident in the many
mosques, mausoleums, forts, and gateways that have survived from the Mughal period. Like
Muslim architecture elsewhere in the subcontinent, these structures are characterized by the
pointed arch, the dome, and the minaret. The best-preserved example is the 77-dome mosque at
Bagerhat in the south. The ruins of Lalbagh Fort, an incomplete 17th-century Mughal palace at
Dhaka, also provide some idea of the older Islamic architectural traditions. While such Mughal
architecture belongs in style and conception to the same school as medieval buildings in northern
India, a unique innovation in Bangladesh has been the translation into brick and mortar of the
sloping four-sided thatched roof found in the countryside.
Some remains of pre-Muslim Buddhist architecture have been unearthed at Paharpur and
Mahasthan in the north and at Maynamati in the south. They are said to date from the 8th
century, and they exhibit the circular stupa pattern characteristic of ancient Buddhist monasteries
in India.
Somapura MahaviraSomapura Mahavira (“Great Monastery”), Paharpur, Bangladesh.© suronin/Fotolia
Public buildings in the British and Pakistani periods sometimes followed the Mughal style, but
preferences subsequently shifted to the International Style, which was prevalent in the United
States and Europe in the mid-20th century. The softness of Bangladesh’s subsoil precludes the
construction of skyscrapers.
Sports and recreation

During the 20th century, football (soccer) emerged as the preeminent sport in Bangladesh. Field
hockey, cricket, tennis, badminton, and wrestling also are popular. Bangladesh made its Olympic
debut at the 1984 Summer Games in Los Angeles. Indigenous games of the “touch-and-run”
type, however, remain among the favourites of children and youths. One such game, called
kabadi, requires each of two teams in turn to send out a player to raid the other’s territory. The
raider must, while chanting, touch as many opposing players as he can without taking a breath.
Kite flying is another traditional pastime enjoyed by young and old alike. The making of
elaborate kites from cloth or paper is a distinctive form of visual art as well.
Media and publishing

Programs are broadcast on radio and television in English and in Bengali; news on the radio is
also broadcast in Urdu, Hindi, Burmese, and Arabic. Both radio and television are controlled by
the government. By contrast, most newspapers are privately owned, and the constitution provides
for freedom of the press. The Bengali newspapers have relatively small circulations, a fact that
reflects the low level of literacy in the country. Nonreaders, however, are still exposed to the
ideas and influence of the press, as newspapers are often read aloud in groups. Although their
circulation is smaller than that of the Bengali papers, English dailies exercise a disproportionate
influence, because their patrons belong to the educated classes. Major Bengali dailies include the
Daily Prothom Alo, Dainik Ittefaq, and Dainik Jugantor; major English dailies include The
Daily Star, New Age, and The New Nation.
Bangladesh’s economic freedom score is 56.4, making its economy the 122nd freest in the 2020
Index. Its overall score has increased by 0.8 point, led by a higher score for property rights.
Bangladesh is ranked 29th among 42 countries in the Asia–Pacific region, and its overall score is
well below the regional and world averages.
Bangladesh has made steady albeit incremental progress toward greater economic freedom
during the past five years. Although its economy has remained stuck in the mostly unfree
category, its GDP growth during the same period has been robust. A welcoming attitude toward
foreign investment and restraint on the growth of government may partially explain the
discrepancy.
For Bangladesh finally to break into the ranks of the moderately free, the government would
have to make a sustained, multiyear effort to improve the three rule-of-law indicators and permit
the entry into the country of more international banks and the best practices they would bring
with them.
Economy - overview:
Bangladesh's economy has grown roughly 6% per year since
2005 despite prolonged periods of political instability, poor
infrastructure, endemic corruption, insufficient power
supplies, and slow implementation of economic reforms.
Although more than half of GDP is generated through the
services sector, almost half of Bangladeshis are employed in
the agriculture sector, with rice as the single-most-important
product.

Garments, the backbone of Bangladesh's industrial sector,
accounted for more than 80% of total exports in FY 2016-17.
The industrial sector continues to grow, despite the need for
improvements in factory safety conditions. Steady export
growth in the garment sector, combined with $13 billion in
remittances from overseas Bangladeshis, contributed to
Bangladesh's rising foreign exchange reserves in FY 2016-
17. Recent improvements to energy infrastructure, including
the start of liquefied natural gas imports in 2018, represent a
major step forward in resolving a key growth bottleneck.
GDP (purchasing power parity):
$690.3 billion (2017 est.)
$642.7 billion (2016 est.)
$599.5 billion (2015 est.)
note: data are in 2017 dollars
country comparison to the world (CIA rank, may be based
on non-current data): 33
[see also: GDP country ranks ]
[see also: GDP country ranks ]
GDP (official exchange rate):
$261.5 billion (2017 est.)
[see also: GDP (official exchange rate) country ranks ]
[see also: GDP (official exchange rate) country ranks ]
GDP - real growth rate:
7.4% (2017 est.)
7.2% (2016 est.)
6.8% (2015 est.)
[see also: GDP - real growth rate country ranks ]
[see also: GDP - real growth rate country ranks ]
GDP - per capita:
$4,200 (2017 est.)
$4,000 (2016 est.)
$3,800 (2015 est.)
note: data are in 2017 dollars
[see also: GDP - per capita country ranks ]
[see also: GDP - per capita country ranks ]
Gross national saving:
30.2% of GDP (2017 est.)
30.6% of GDP (2016 est.)
30.3% of GDP (2015 est.)
country comparison to the world (CIA rank, may be based on non-current data): 30
[see also: Gross national saving country ranks ]
[see also: Gross national saving country ranks ]
GDP - composition, by end use:
household consumption: 68.7% (2017 est.)
[see also: GDP - composition, by end use - household
consumption country ranks ]
government consumption: 6% (2017 est.)
[see also: GDP - composition, by end use - government
consumption country ranks ]
investment in fixed capital: 30.5% (2017 est.)
[see also: GDP - composition, by end use - investment in
fixed capital country ranks ]
investment in inventories: 1% (2017 est.)
[see also: GDP - composition, by end use - investment in
inventories country ranks ]
exports of goods and services: 15% (2017 est.)
[see also: GDP - composition, by end use - exports of goods
and services country ranks ]
imports of goods and services: -20.3% (2017 est.)
[see also: GDP - composition, by end use - imports of goods
and services country ranks ]
GDP - composition, by sector of origin:
agriculture: 14.2% (2017 est.)
[see also: GDP - composition, by sector of origin -
agriculture country ranks ]
industry: 29.3% (2017 est.)
[see also: GDP - composition, by sector of origin - industry
country ranks ]
services: 56.5% (2017 est.)
[see also: GDP - composition, by sector of origin - services
country ranks ]
Agriculture - products:
rice, jute, tea, wheat, sugarcane, potatoes, tobacco, pulses,
oilseeds, spices, fruit; beef, milk, poultry
Industries:
jute, cotton, garments, paper, leather, fertilizer, iron and
steel, cement, petroleum products, tobacco, pharmaceuticals,
ceramics, tea, salt, sugar, edible oils, soap and detergent,
fabricated metal products, electricity, natural gas
Industrial production growth rate:
10.2% (2017 est.)
[see also: Industrial production growth rate country ranks ]
[see also: Industrial production growth rate country ranks ]
Labor force:
66.64 million (2017 est.)
note: extensive migration of labor to Saudi Arabia, Kuwait,
UAE, Oman, Qatar, and Malaysia
[see also: Labor force country ranks ]
[see also: Labor force country ranks ]
Labor force - by occupation:
agriculture: 42.7%
[see also: Labor force - by occupation - agriculture country
ranks ]
industry: 20.5%
[see also: Labor force - by occupation - industry country
ranks ]
services: 36.9% (2016 est.)
[see also: Labor force - by occupation - services country
ranks ]
Unemployment rate:
4.4% (2017 est.)
4.4% (2016 est.)
note: about 40% of the population is underemployed; many
persons counted as employed work only a few hours a week
and at low wages
[see also: Unemployment rate country ranks ]
[see also: Unemployment rate country ranks ]
Population below poverty line:
24.3% (2016 est.)
[see also: Population below poverty line country ranks ]
[see also: Population below poverty line country ranks ]
Household income or consumption by percentage share:
lowest 10%: 4%
[see also: Household income or consumption by percentage
share - lowest 10% country ranks ]
highest 10%: 27% (2010 est.)
[see also: Household income or consumption by percentage
share - highest 10% country ranks ]
Distribution of family income - Gini index:
32.1 (2010)
33.2 (2005)
[see also: Distribution of family income - Gini index country
ranks ]
[see also: Distribution of family income - Gini index country
ranks ]
Budget:
revenues: 25.1 billion (2017 est.)
[see also: Budget - revenues country ranks ]
expenditures: 33.5 billion (2017 est.)
[see also: Budget - expenditures country ranks ]
Taxes and other revenues:
9.6% (of GDP) (2017 est.)
[see also: Taxes and other revenues country ranks ]
[see also: Taxes and other revenues country ranks ]
Budget surplus (+) or deficit (-):
-3.2% (of GDP) (2017 est.)
[see also: Budget surplus (+) or deficit (-) country ranks ]
[see also: Budget surplus (+) or deficit (-) country ranks ]
Public debt:
33.1% of GDP (2017 est.)
33.3% of GDP (2016 est.)
[see also: Public debt country ranks ]
[see also: Public debt country ranks ]
Fiscal year:
1 July - 30 June
Inflation rate (consumer prices):
5.6% (2017 est.)
5.7% (2016 est.)
[see also: Inflation rate (consumer prices) country ranks ]
[see also: Inflation rate (consumer prices) country ranks ]
Central bank discount rate:
5% (11 December 2017)
5% (30 October 2015)
[see also: Central bank discount rate country ranks ]
[see also: Central bank discount rate country ranks ]
Commercial bank prime lending rate:
9.54% (31 December 2017 est.)
10.41% (31 December 2016 est.)
[see also: Commercial bank prime lending rate country
ranks ]
[see also: Commercial bank prime lending rate country
ranks ]
Stock of narrow money:
$28.68 billion (31 December 2017 est.)
[see also: Stock of narrow money country ranks ]
[see also: Stock of narrow money country ranks ]
Stock of broad money:
[see also: Stock of broad money country ranks ]
[see also: Stock of broad money country ranks ]
Stock of domestic credit:
[see also: Stock of domestic credit country ranks ]
[see also: Stock of domestic credit country ranks ]
Market value of publicly traded shares:
$92.33 billion (30 September 2017 est.)
[see also: Market value of publicly traded shares country
ranks ]
[see also: Market value of publicly traded shares country
ranks ]
Current account balance:
-$5.322 billion (2017 est.)
$1.391 billion (2016 est.)
[see also: Current account balance country ranks ]
[see also: Current account balance country ranks ]
Exports:
$35.3 billion (2017 est.)
$34.14 billion (2016 est.)
[see also: Exports country ranks ]
[see also: Exports country ranks ]
Exports - partners:
Germany 12.9%, US 12.2%, UK 8.7%, Spain 5.3%, France 5.1%, Italy 4.1% (2017)
Exports - commodities:
garments, knitwear, agricultural products, frozen food (fish and seafood), jute and jute goods, leather
Imports:
$47.56 billion (2017 est.)
$40.28 billion (2016 est.)
[see also: Imports country ranks ]
[see also: Imports country ranks ]
Imports - commodities:
cotton, machinery and equipment, chemicals, iron and steel, foodstuffs
Imports - partners:
China 21.9%, India 15.3%, Singapore 5.7% (2017)
Reserves of foreign exchange and gold:

[see also: Reserves of foreign exchange and gold country ranks ]
[see also: Reserves of foreign exchange and gold country ranks ]
Debt - external:
[see also: Debt - external country ranks ]
[see also: Debt - external country ranks ]
Stock of direct foreign investment - at home:

[see also: Stock of direct foreign investment - at home country ranks ]
[see also: Stock of direct foreign investment - at home country ranks ]
Stock of direct foreign investment - abroad:

$369.6 million (31 December 2017 est.)
$228.5 million (31 December 2016 est.)
[see also: Stock of direct foreign investment - abroad country ranks ]
[see also: Stock of direct foreign investment - abroad country ranks ]
Exchange rates:
taka (BDT) per US dollar -
80.69 (2017 est.)
78.468 (2016 est.)
78.468 (2015 est.)
77.947 (2014 est.)
77.614 (2013 est.)
Background
Bangladesh is a large Muslim-majority democracy that shares borders with India and Burma.
The British partition of India in 1947 resulted in the creation of West Pakistan and, in the
Muslim-majority areas of Bengal east of India, East Pakistan. Following a brutal conflict for
independence from West Pakistan, East Pakistan, aided by India, declared itself the independent
state of Bangladesh in 1971. Two political parties have alternated in power for decades. Prime
Minister Sheikh Hasina of the Awami League secured her third consecutive term with a landslide
victory in December 2018 elections. The opposition Bangladesh Nationalist Party won only
seven seats. Despite political instability and poor economic freedom indicators, economic growth
has been robust, led by garment exports.
Rule of Law
Property Rights 41.0
Judicial Effectiveness 36.1
Government Integrity 26.6
Antiquated real property laws and poor record-keeping systems can complicate land and property
transactions. The weak judiciary is slow and lacks independence. Contract enforcement and
dispute settlement procedures are inefficient. Endemic corruption and criminality, weak rule of
law, limited bureaucratic transparency, and political polarization undermine government
accountability and seriously impede investment and economic growth. High-profile corruption
cases are common.
Government Size
Tax Burden 72.7
Government Spending 94.3
Fiscal Health 76.8
The top income tax rate is 25 percent, and the top corporate tax rate is 45 percent. Other taxes
include a value-added tax. The overall tax burden equals 9.1 percent of total domestic income.
Government spending has amounted to 13.7 percent of the country’s output (GDP) over the past
three years, and budget deficits have averaged 3.6 percent of GDP. Public debt is equivalent to
34.8 percent of GDP.
Regulatory Efficiency
Business Freedom 52.3

Labor Freedom 68.4 Monetary Freedom 70.0 Incremental progress in streamlining business
regulations has been undermined by an uncertain regulatory environment, a shortage of financing
tools, and bureaucratic delays. Bangladesh boasts a young and hard-working labor force and has
made notable progress in addressing fire and workplace safety. The government subsidizes
energy and agricultural products and maintains price controls for some essential pharmaceutical
products.
Open Markets
Trade Freedom 63.6
Investment Freedom 45.0
Financial Freedom 30.0
The total value of exports and imports of goods and services equals 38.2 percent of GDP. The
average applied tariff rate is 10.7 percent. Layers of nontariff barriers impede dynamic flows of
trade. Government openness to foreign investment is less than average. The financial sector
remains underdeveloped and vulnerable to government interference. The level of state ownership
and control of banking is considerable.
Regional Ranking
RAN OVERAL
COUNTRY CHANGE
K L
17 Bhutan 62.1 -0.8
18 Samoa 62.1 -0.1
19 Vanuatu 60.7 4.3
20 China 59.5 1.1
21 Vietnam 58.8 3.5
22 Tonga 58.8 1.1
23 Papua New Guinea 58.4 0.0
24 Sri Lanka 57.4 1.0
25 Cambodia 57.3 -0.5
26 Uzbekistan 57.2 3.9
27 Maldives 56.5 3.3

28 India 56.5 1.3
29 Bangladesh 56.4 0.8
30 Mongolia 55.9 0.5
31 Laos 55.5 -1.9
32 Pakistan 54.8 -0.2
33 Afghanistan 54.7 3.2
34 Nepal 54.2 0.4
35 Burma 54 0.4
36 Solomon Islands 52.9 -1.7
37 Tajikistan 52.2 -3.4
38 Micronesia 52 0.1
39 Turkmenistan 46.5 -1.9
40 Timor-Leste 45.9 1.7
41 Kiribati 45.2 -2.1
© 2020 by The Heritage Foundation. All Rights Reserved.
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  This overview considers the past, the present, and the future of economic development. It
begins with the conceptualization, definition, and measurement of economic development,
highlighting that a narrow focus on the economic is inadequate to capture development and even,
paradoxically, economic development itself. Key aspects of economic and human development
over the past seven decades are then outlined, and the current landscape is described. The paper
then considers the future of economic development, highlighting the challenges faced by
developing countries, especially the opportunities and risks provided by the recent downward
global trend in the share of labor in overall economic activity.
Economic Development
What is economic development and how has the concept evolved through the years? The
economic part of it could be thought to be relatively straightforward. Surely, a steady rise in per
capita income as conventionally measured is an anchor, in concept and in reality. It would be odd
indeed to describe declining per capita income as economic development. But rising per capita
income, while necessary, is certainly not sufficient for development, and even for economic
development.
The distribution of this rising income among the population is legitimately in the domain of
economic development. Two key features of the distribution of income are inequality and
poverty. If average income rises but the inequality of its distribution also increases, then an
egalitarian perspective would mark down the latter as a negative aspect of economic
development. If poverty, the population below a socially acceptable level of income, also
increases then this is another negative mark to be set against rising average income in assessing
economic development. Of course, the actual outcome on poverty will depend on an interaction
between average income and inequality and which of the two forces dominates empirically.
If higher average income is accompanied by increasingly unequal distribution, an egalitarian

perspective will qualify it as negative. Growing poverty would also contrast negatively with
highter average income in any evaluation of economic development
But identifying economic development purely with income is too narrow a conception. Other
aspects of well-being are surely relevant. Education and health outcomes, for example, go
beyond income. They are important markers of well-being in their own right, but they influence,
and are influenced by, income. High income can deliver an educated and healthy population, but
an educated and healthy population also delivers high income. Thus, any assessment of
development, and even economic development, needs to take into account a broader range of
measures of well-being than simply income and its distribution. Education and health, and their
distribution in the population, are important as well.
Distribution is not simply about inequality between individuals. Inequality across broadly
defined groups is also a key factor. Gender inequality saps economic development as it
suppresses the potential of half the population. Thus, improvements in measures of gender
inequality are to be looked for in their own right, but also because of the contributions they make
to economic growth and to addressing economic inequality. Similarly, inequalities between
ethnic and regional groups stoke social tension and affect the climate for investment and hence
economic growth. It is difficult to separate out these seemingly non-economic dimensions from
the narrowly economic. Economic development is thus also about development more generally.
A narrow focus on measured market income misses out on use of resources which are not priced
appropriately in the market. The most important of these is the environment, especially in the
context of greenhouse gas emissions and climate change. Rising national income as
conventionally measured does not price in the loss of irreplaceable environmental resources at
the national level nor, in the case of climate change, irreversible moves toward catastrophic risks
for the planet we live on.
A broader conception of development has been embraced by the international community, first
through the Millennium Development Goals (MDGs) of 2000, and then through the Sustainable
Development Goals (SDGs) of 2015. The eight MDGs were expanded and modified to seventeen
SDGs, which include conventional economic measures such as income growth and income
poverty, but also inequality, gender disparities, and environmental degradation (Kanbur, Patel,
and Stiglitz, 2018). Indeed, the crystallization and cementing of this broader conceptualization of
development, and even of economic development, has been one of the sure advances during the
past decade of thinking, and surely represents a move toward a “new enlightenment” in assessing
trajectories of achievement. But what have these trajectories been over the past seven decades
since World War II? The next section takes up the story.
The Past1
The six decades after the end of World War II, until the crisis of 2008, were a golden age in
terms of the narrow measure of economic development, real per capita income (or gross
domestic product, GDP). This multiplied by a factor of four for the world as a whole between
1950 and 2008. For comparison, before this period it took a thousand years for world per capita
GDP to multiply by a factor of fifteen. Between the year 1000 and 1978, China’s income per
capita GDP increased by a factor of two; but it multiplied six-fold in the next thirty years. India’s
per capita income increased five-fold since independence in 1947, having increased a mere
twenty percent in the previous millennium. Of course, the crisis of 2008 caused a major dent in
the long-term trend, but it was just that. Even allowing for the sharp decreases in output as the
result of the crisis, postwar economic growth is spectacular compared to what was achieved in
the previous thousand years.
The six decades after the end of World War II, until the crisis of 2008, were a golden age in
terms of the narrow measure of economic development, real per capita income. This multiplied
by a factor of four for the world as a whole between 1950 and 2008
But what about the distribution of this income, and in particular the incomes of the poorest? Did
they share in the average increase at all? Here the data do not stretch back as far as for average
income. In fact, we only have reasonably credible information going back three decades. But,
World Bank calculations, using their global poverty line of $1.90 (in purchasing power parity)
per person per day, the fraction of world population in poverty in 2013 was almost a quarter of
what it was in 1981—forty-two percent compared to eleven percent. The large countries of the
world—China, India, but also Vietnam, Bangladesh, and so on—have contributed to this
unprecedented global poverty decline. Indeed, China’s performance in reducing poverty, with
hundreds of millions being lifted above the poverty line in three decades, has been called the
most spectacular poverty reduction in all of human history.
A
fishermen´s neighborhood in Mumbai, where the suburbs are changing their appearance thanks to an
organization dedicated to improving living conditions for the disadvantaged in India´s financial capital.
June, 2018
But the story of the postwar period is not simply one of rising incomes and falling income
poverty. Global averages of social indicators have improved dramatically as well. Primary school
completion rates have risen from just over seventy percent in 1970 to ninety percent now as we
approach the end of the second decade of the 2000s. Maternal mortality has halved, from 400 to
200 per 100,000 live births over the last quarter century. Infant mortality is now a quarter of
what it was half a century ago (30 compared to 120, per 1,000 live births). These improvements
in mortality have contributed to improving life expectancy, up from fifty years in 1960 to
seventy years in 2010.
By 2013, the percentage of the world´s population living in poverty had dropped to one fourth the
percentage of 1981: eleven percent compared to the previous forty-two percent
Focus on just income, health, and education hides another major global trend since the war. This
has truly been an age of decolonization. Membership of the UN ratcheted up as more and more
colonies gained political independence from their colonial masters, rising from around fifty in
1945 to more than 150 three decades later. There has also been a matching steady increase in the
number of democracies with decolonization, but there was an added spurt after the fall of the
Berlin Wall in 1989, when almost twenty new countries were added to the democratic fold. To
these general and well quantified trends we could add others, less easily documented, for
example on women’s political participation.
With this background of spectacular achievements at the global level, what is to stop us from
declaring a victorious past on human progress? The answer is that we cannot, because good
global average trends, although they are to be welcomed, can hide alarming counter tendencies.
Countries in Africa which are mired in conflict do not have any growth data to speak of, and
indeed any economic growth at all. Again in Africa, for countries for which we have data,
although the fraction of people in poverty has been falling, the absolute number in poverty has
been rising, by almost 100 million in the last quarter century, because of population growth.
A similar tale with two sides confronts us when we look at inequality of income in the world.
Inequality as between all individuals in the world can be seen as made up of two components.
The first is inequality between average incomes across countries—the gap between rich and poor
countries. The second is inequality within each country around its average. Given the fast growth
of large poorer countries like India and China relative to the growth of richer countries like the
US, Japan, and those in Europe, inequality between countries has declined. Inequality within
countries displays a more complex picture, but sharp rises in inequality in the US, Europe, and in
China and India means that overall within-country inequality has increased. Combining the two,
world inequality has in fact declined overall (Lakner and Milanovic, 2016). The importance of
between-nation inequality has fallen from a contribution of four fifths of global inequality a
quarter century ago. But its contribution is still not lower than three quarters of total world
inequality. These two features, rising within nation inequality in large developing countries, and
the still enormous role of between-nation inequality in global inequality, are the other side of the
coin from the good news of developing country growth on average in the last three decades.
Inequality among Earth’s inhabitants comprises two elements: the first, which is expressed by
each country’s average income, reflects the gap between rich and poor countries; the second
reflects inequalities within each country in terms of average incomes
But income growth, if it comes at the expense of the environment, mis-measures improvement in
human well-being. Particulate pollution has increased by ten percent over the last quarter
century, with all of its related health implications. The global population under water stress has
almost doubled in the last half century, and there has been a steady decline in global forest area
over the same period. Global greenhouse gas emissions have increased from under 40 gigatons
equivalent to close to 50 gigatons in the last quarter century. On present trends global warming is
projected to be around 4°C by 2100, well above the safe level of 1.5°C warming. The
consequences of global warming have already begun to appear in terms of an increase in severe
weather outcomes.
Thus, the past seven decades have indeed been golden ones for economic development on some
measures, and even development more broadly measured. But all is not golden. The trends hide
very worrying tendencies which have begun to surface in terms of their consequences, and are
shaping the landscape of development we have with us. The next section takes up the story with
a focus on the present of economic development.
The Present
The present of the economic development discourse is, of course, shaped by the trends of the
distant and recent past. An interesting and important feature of the current landscape is the shift
in the global geography of poverty. Using standard official definitions, forty years ago ninety
percent of the world’s poor lived in low-income countries. Today, three quarters of the world’s
poor live in middle-income countries (Kanbur and Sumner, 2012). The fast growth of some large
countries, accompanied by rising inequality in these countries, means that the average income
increases have not been reflected in poverty reduction to the same extent. So, although these
countries have now crossed the middle-income category boundary, which depends on average
income, they still have large absolute numbers of poor people. These poor in middle-income
countries vie with the poor in poor countries for global concern and attention.
The
opening session of the Millennium Summit at United Natios Headquarters in New York on September 6,
2000. From left to right: The then Secretary General of the UN, Kofi Annan and Co-presidents Tarja
Halonen (Findland) and Sam Nujona (Namibia)
This disconnect between a person being poor and their country being poor is shaking up the
global development assistance system, which was built on the notion that the bulk of the world’s
poor lived in poor countries. This is manifested in the “graduation” criteria used by most aid
agencies, whereby aid is sharply reduced and then cut off when a country’s average income
crosses a threshold, typically related to middle-income status. It raises the question posed by
Kanbur and Sumner (2012): “Poor countries or poor people?” The response has been, by and
large, to stay with the average income criteria. This has led to and will increasingly lead to a
dichotomy between very poor countries, often mired in conflict, and middle-income countries
where, in fact, the bulk of the world’s poor now live. Thus, if the World Bank’s soft loan arm
sticks to its graduation criteria, it will in effect disengage from the vast majority of the world’s
poor, while focusing on the poorest countries in the world. This disengagement is difficult to
justify on ethical grounds, but also difficult to understand if middle-income countries are also the
source of global environmental problems and, for some of them, the source of conflict-based
migration.
Migration, conflict-based and economic, brings us to another important feature of the present
landscape of economic development, one which is the result of past trends and which will surely
have global implications for the future. Rising inequality in rich countries has intersected with
increased migration pressures from poor countries. Despite the closing of the gap between rich
and poor countries because of the fast growth of some poor countries, the gap is still enormous,
both on average and especially so for the poorest countries who have not grown as fast. These
gaps have combined with increased pressures because of armed conflict and exacerbated by
environmental stress.
Ben
Bernanke, president of the United States Federal Reserve between 2006 and 2014, lecturing
undergraduate seniors at Harvard University, Cambridge, Massachusetts, in June 2008
The hollowing out of the middle class in rich countries has coincided with greater immigration,
leading to a toxification of democratic politics in these countries and the rise of far-right, nativist,
and xenophobic tendencies in the body politic (Kanbur, 2018). The election of Trump, the vote
for Brexit, and the entry of Alternative für Deustchland into the German Parliament are only the
most obvious outward manifestations of the current malaise of the body politic. Nor is this just
an issue in rich countries. The anti-migrant mob violence in South Africa and ethnic conflict in
countries such as Myanmar are part of the same pattern of migration tensions which color
economic development today.
The current terrain of economic development has clearly been influenced by the great financial
crisis of 2008. Most recently, the global crisis has proved disruptive to development gains,
although the losses can be said to have been mainly concentrated in the rich countries. But the
reactions and the backlash now apparent in rich countries are having and will have consequences
for economic development in poor countries. Further, the genesis of the crisis exposed fault lines
in the economic model pursued by rich countries, with wholesale deregulation of markets and
especially of banking and capital flows.
The hollowing out of the middle class in rich countries has coincided with greater immigration,
leading to a toxification of democratic politics in these countries and the rise of far-right, nativist,
and xenophobic tendencies in the body politic
The current state of affairs and ongoing debates relate back to the trajectory of thinking since the
fall of the Berlin Wall in 1989. It will be recalled that in a famous statement of the time the
events were characterized as marking “the end of history” (Fukuyama, 1989), meaning by this
that liberal democracy and free markets had won the battle of ideas. But, as noted by Kanbur
(2001), “the end of history lasted for such a short time.” The financial crisis of 1997, emanating
from the newly liberalized capital markets of East Asia, was a warning shot. The financial crisis
of 2008, emanating in the deregulated financial markets of the US and Europe, led to the world
global depression since the 1930s.
The world as a whole is only just recovering from this catastrophe. Its effect on economic
thinking has been salutary. Queen Elizabeth II of the United Kingdom famously asked British
economists why they did not see it coming. The response from Timothy Besley and Peter
Hennessy was that: “So in summary, Your Majesty, the failure to foresee the timing, extent and
severity of the crisis and to head it off, while it had many causes, was principally a failure of the
collective imagination of many bright people, both in this country and internationally, to
understand the risks to the system as a whole” (quoted in Kanbur, 2016). But the risks to the
system as a whole were magnified by the deregulatory stance of policy makers in the early
2000s, still basking in the “end of history” narrative of the turn of the millennium. It is to be
hoped that the lessons of the devastating crisis of 2008 will not be forgotten as we go forward.
Thus the crisis of 2008 sits atop, and sharpens, negative aspects of trends identified in the
previous section and shapes the present and future prospects. These future prospects are taken up
in the next section.
The Future
The past and present of economic development sets the platform for the long-term future.
Environmental degradation and climate change will surely worsen development prospects and
ratchet up conflict and environmental stress-related migration. The issues here have been well
debated in the literature (see for example, Kanbur and Shue, 2018). And the actions needed are
relatively clear—the question is rather whether there is the political will to carry them out.
Beyond challenges that arise due to ecological change and environmental degradation, another
prominent challenge that has arisen since the 1980s is the global decline in the labor share. The
labor share refers to payment to workers as a share of gross national product at the national level,
or as a share of total revenue at the firm level. Its downward trend globally is evident using
observations from macroeconomic data (Karababounis and Neiman, 2013; Grossman et al.,
2017) as well as from firm-level data (Autor et al., 2017). A decline in the labor share is
symptomatic of overall economic growth outstripping total labor income. Between the late 1970s
and the 2000s the labor share has declined by nearly five percentage points from 54.7% to 49.9%
in advanced economies. By 2015, the figure rebounded slightly and stood at 50.9%. In emerging
markets, the labor share likewise declined from 39.2% to 37.3% between 1993 and 2015 (IMF,
2017). Failure to coordinate appropriate policy responses in the face of these developments can
spell troubling consequences for the future of economic development. Indeed, the decline in
labor share despite overall economic progress is often seen as fuel that has fanned the fire of
anti-immigration and anti-globalization backlashes in recent years, threatening a retreat of the
decades-long progress made on trade and capital market liberalization worldwide.
It should be noted that the labor share and income inequality are inextricably linked. Indeed, the
labor share is frequently used as a measure of income inequality itself (for example, Alesina and
Rodrik, 1994). Understanding the forces that determine the labor share has been a singularly
important aspect of the landscape of economic development. Indeed, this quest has guided trade
and development economics research for decades, during which time the forces of globalization
and its many nuanced impacts on the labor share have been fleshed out (Bardhan, 2006;
Bourguignon, 2017).
Yet, there are good reasons to take the view that canonical economic models often do not offer
predictions consistent with the current pattern of labor share decline in the global economy.
Notably, behind the veil of global labor share decline is in fact a tremendous amount of
underlying diversity in the direction of change of the labor share at the country level, with
emerging and advanced economies at both ends of the spectrum (Karababounis and Neiman,
2013). Such observations are contrary to the canonical prediction of economic models based on
the assumptions of constant technologies, perfect competition, and no market imperfections.
Guided by these assumptions, the standard prediction is that workers in relatively labor abundant
countries should strictly benefit from exposure to world trade in both absolute terms and relative
to owners of other inputs of production. In stark contrast, however, after taking on the role as the
world’s largest factory, China has experienced one of the most significant rates of decline in
labor share since 1993 (IMF, 2017).
A search for additional forces that may be in play is clearly warranted.2 To this end, the trajectory
of the global labor share sits at the confluence of three major shifts in the defining features of
developing and developed economies. These include: (i) the adoption of labor-saving
technological change; (ii) the shift in importance of employer market power; and (iii) the
growing prevalence of alternative modes of employment in the labor market.
Labor-saving technological change is a key driver in the recent global labor share decline (IMF,
2017). The reasons for firms and producers to embrace such a change are many, including a
reduction in the price of investment goods and informational technology investment
(Karababounis and Neiman, 2013), and the advent of robotics in the manufacturing process
(Acemoglu and Restrepo, 2018), for example. Already, advanced economies do not have a
monopoly over the adoption of labor-saving technological change. Indeed, China has put in place
more robots in manufacturing than any other country according to recent estimates (Bloomberg
News, 2017). The implication of labor-saving technological change on labor income is not
obvious, however, as it juxtaposes the overall productivity gains that arise from the use of labor-
saving technical change, with its potential adverse consequences on unemployment. In the end,
whether workers benefit from labor-saving technological change will depend on how quickly
productivity gains translate into wage gains (Acemoglu and Autor, 2011; Acemoglu and
Restrepo, 2018; Chau and Kanbur, 2018).
An important problem arose in the 1980s: the worldwide decline in the workers’ payment as a
share of gross national product on a national level, or as a share of total revenue at the firm level
It is here that additional research can potentially reap significant dividends in furthering our
understanding of how developing country markets function and how they respond to shocks.
Some important mediating factors have already been identified. These include existing labor
market distortions that may skew decision-making about technological change (Acemoglu and
Restrepo, 2018), and search friction in the labor market and the resulting possibility of complex
distributional responses to technological change (Chau and Kanbur, 2018). Further, policy
responses to labor-saving technical change need to be developed and implemented, including
perhaps public investment in research into developing efficient labor using technology
(Atkinson, 2016; Kanbur, 2018).
In addition to national- or market-level differences in the labor share, recent firm-level evidence
has inspired a surge in studies showing that employer market power can give rise to systematic
differences in the labor share across firms with heterogeneous productivity levels (for example,
Melitz and Ottaviano, 2008). It is by now well known that globalization disproportionately
favors high-productivity firms. The ascendance of superstar firms in recent years in the US, with
their demonstrably higher propensities to adopt labor-saving technologies, provides an excellent
example of how industrial organizational changes can impact the overall labor share (Autor et
al., 2017). Employer market power has become a fact of life in emerging markets as well (for
example, Brandt et al., 2017). In the course of economic development, does the shift in
importance of large firms disproportionately favor the adoption of labor-saving technologies
(Zhang, 2013)? Or do they, in fact, value worker morale and pay higher wages (Basu, Chau, and
Soundararajan, 2018)? These are critical questions that can inform a host of policy issues going
forward, from the desirability of minimum wages to facilitate better wage bargains to be struck
for workers, to the use of competition policies as a tool for economic development, for example.
The international community adopted a more global concept of development through the 2000
Millennium Development Goals (MDG)
Compounding these shifts in technologies and industrial organization, labor market institutions
in emerging markets have also seen significant developments. Present-day labor contracts no
longer resemble the textbook single employer single worker setting that forms the basis for many
policy prescriptions. Instead, workers often confront wage bargains constrained by fixed-term, or
temporary contracts. Alternatively, labor contracts are increasingly mired in the ambiguities
created in multi-employer relationships, where workers must answer to their factory supervisors
in addition to layers of middleman subcontractors. These developments have created wage
inequities within establishments, where fixed-term and subcontracted workers face a significant
wage discount relative to regular workers, with little access to non-wage benefits. Strikingly,
rising employment opportunities can now generate little or even negative wage gains, as the
contractual composition of workers changes with employment growth. The result can be a
downward spiral in worker morale (Basu, Chau, and Soundararajan, 2018). These developments
suggest that a decline in labor share generated by contractual shifts in the labor market can
ultimately have adverse consequences on the pace of overall economic progress. Attempts to
address wage inequities between workers within establishments is a nascent research area
(Freeman, 2014; Basu, Chau, and Soundararajan, 2018), and what is intriguing here is the
possibility that we now have a set of circumstances under which inequality mitigating policies,
by raising worker morale, may end up improving overall efficiency as well.
The ascendence of superstar firms with a propensity to adopt labor-saving technologies provides
an excellent example of how industrial organizational changes can impact labor’s overall share
of the GNP
We began this chapter by emphasizing the joint importance of overall economic progress and
income inequality as metrics of development. Our brief look at the future of the economic
development landscape sheds light on the critical importance of bringing together multiple
perspectives in our understanding of how these two metrics of development are codetermined.
Doing so opens up new policy tools (for example, competition policies and technology policies),
new reasons for (non-)intervention (for example, workers’ morale consequences of wage
inequities), and, perhaps equally important, new policy settings where equity and efficiency are
no longer substitutes for each other.
Conclusion
Looking back over the past seven decades since the end of World War II, economic development
presents us with a string of contradictions. There have been unprecedented rises in per capita
income, with many large developing countries crossing the threshold from low-income to
middle-income status. These income increases have been accompanied by equally unprecedented
improvements in income poverty and in education and health indicators.
But at the same time there is palpable anxiety about the development process, its sustainability,
and its implications for the global economy. Despite the fast increases in income in poorer
countries, gaps between them and rich countries remain large. Together with conflict and
environmental stress, this has led to migration pressures, particularly for richer countries but also
for better-off developing countries. The combination of migration pressures and rising inequality
has led to the toxic rise of illiberal populist politics which is threatening postwar democratic
gains.
Moment
s before Apple announces a product at its new headquarters in Cupertino, California, on September 12,
2018, just one year after launching its iPhone X, the most expensive smartphone on the market
While environmental and climate change, and rising inequality in general, have been much
discussed, we have highlighted a particular source of rising inequality as an ongoing threat to
economic development. The falling share of labor in the economy is set to continue and unless
counteracted by strong policy measures will threaten inclusive development in the coming
decades.
We have also highlighted how thinking in economics has responded to the underlying forces of
change. There has been a broadening of the concept of development beyond the narrowly
economic. The roots of the great financial crisis of the end of the first decade of the new
millennium have also been scrutinized and, hopefully, some lessons have been learned. And
attention is turning to understanding the inexorable decline in labor’s share. Whether all this adds
up to a New Enlightenment in economic thinking is something the next decades of development
will reveal.
—Acemoglu, Daron, and Restrepo, Pascual. 2018. “The race between man and machine:
Implications of technology for growth, factor shares and employment.” American Economic
Review 108(6): 1488–1542. —Acemoglu, Daron, and Autor, David. 2011. “Skills, tasks and
technologies: Implications for employment and earnings.” In Handbook of Labor Economics,
Orley Ashenfelter and David Card (eds.). Amsterdam: Elsevier-North, 4: 1043–1171
—IMF. 2017. World Economic Outlook. International Monetary Fund. Washington, DC.

What Is An Economy?

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Bangladesh’s heavy dependence on agriculture has long contributed to seasonal unemployment

Resources and power

Health and welfare

Music, dance, and theatre

Visual art and architecture

Somapura MahaviraSomapura Mahavira (“Great Monastery”), Paharpur, Bangladesh.© suronin/Fotolia

Sports and recreation

Media and publishing

Reserves of foreign exchange and gold:

Stock of direct foreign investment - at home:

Stock of direct foreign investment - abroad:

Property Rights 41.0

Judicial Effectiveness 36.1

Government Integrity 26.6

Tax Burden 72.7

Government Spending 94.3

Fiscal Health 76.8

Business Freedom 52.3

Trade Freedom 63.6

Investment Freedom 45.0

Financial Freedom 30.0

17 Bhutan 62.1 -0.8

18 Samoa 62.1 -0.1

19 Vanuatu 60.7 4.3

20 China 59.5 1.1

21 Vietnam 58.8 3.5

22 Tonga 58.8 1.1

23 Papua New Guinea 58.4 0.0

24 Sri Lanka 57.4 1.0

25 Cambodia 57.3 -0.5

26 Uzbekistan 57.2 3.9

27 Maldives 56.5 3.3

29 Bangladesh 56.4 0.8

30 Mongolia 55.9 0.5

31 Laos 55.5 -1.9

32 Pakistan 54.8 -0.2

33 Afghanistan 54.7 3.2

34 Nepal 54.2 0.4

36 Solomon Islands 52.9 -1.7

37 Tajikistan 52.2 -3.4

39 Turkmenistan 46.5 -1.9

40 Timor-Leste 45.9 1.7

41 Kiribati 45.2 -2.1

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—IMF. 2017. World Economic Outlook. International Monetary Fund. Washington, DC.

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