The Financial Express, 19 Dec, 2013
Growth of agriculture, manufacturing Structural change
of Bangladesh economy
Rushidan Islam Rahman
Structural change of Bangladesh economy
Bangladesh economy has experienced an acceleration of GDP growth during the last two
decades. While the positive changes in the performance of the economy have generated an
optimism, it must be recognised that a complacence about the recent achievements of the
economy can be self-defeating. A cautious and realistic assessment of the recent GDP growth
performance and structural change associated with the growth process is required so that
policies may be appropriately designed to sustain the positive trends.
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According to conventional economic wisdom, an acceleration of GDP growth is expected to be
associated with a change in the sectoral composition of GDP. As the economy grows, the
emphasis on primary production will decline and the industry and the service sector's growth
are likely to accelerate.
Acceleration of growth in the manufacturing and the tertiary sectors offer prospects of
sustained increases in GDP growth rate because of the technological progress associated with
such production. The higher productivity also offers the promises of higher wage rate than in
traditional agriculture.
However, the conventional wisdom should not overshadow agriculture's role in the
development process. It will not only provide cheap labour to the other fast growing sectors,
and keep food prices low but will have a large impact on GDP growth of Bangladesh because it
has the largest share in GDP of the country. In this paper I would like to examine whether
Bangladesh economy is undergoing a structural change.
The share of agriculture and non-agriculture in the country's GDP during 1990 to 2012 shows a
number of interesting features. Agriculture's share declined whereas non-agriculture's share
increased from about 61 per cent in 1990 to 80 per cent in 2012. The increase was faster during
1990 to year 2000, the share rising from 61.7 per cent to 74.5 per cent. During 2000 to 2012 the
share increased by only six percentage points. The average annual growth rate of GDP from
both agriculture and non-agriculture accelerated during the entire period. But the growth rate
of non-agricultural GDP was much higher and therefore its share in the total GDP has risen.
Share of non-agriculture in total GDP is much higher in the middle and high income countries.
However, this has been made possible by high average GDP per person, so that even with a
lower share of agriculture, a country can meet much of the domestic demand. Bangladesh may
have to continue with a high share of agricultural GDP to ensure food security of its growing
population. The strategy for structural change in Bangladesh's economy will require faster
acceleration of GDP growth in manufacturing through creating an environment for accelerated
increase in private investment rate and simultaneously agricultural growth should be
accelerated through growth of public investment in the sector. Prospect of acceleration of GDP
growth will depend on the simultaneous growth of farm and non-farm sectors and
overemphasis on structural change of the economy during the coming years may not be the
most desirable option for the country.
In the past there has been lack of complementarity in sectoral growth pattern. This becomes
clear when one looks at the annual growth rates of GDP from agriculture and manufacturing
(Table 2). The annual growth rate of the two sectors moved in the reverse direction in most
years shown by signs in parenthesis. In a few years the growth rates of both agriculture and
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manufacturing declined. Only in a small number of years both agriculture and manufacturing
had experienced positive changes in growth rate and in those years growth rate of total GDP
accelerated.
This inverse relationship is the result of fluctuations in the growth rates of both agriculture and
industry. While the fluctuations in agricultural growth have been associated mostly with natural
calamities, the fluctuations of industrial growth have been linked with a variety of factors,
including both natural factors and the demand-side forces.
The negative association between GDP growth in agriculture and manufacturing also reflect a
natural response of the economy where the workforce is involved in diversified occupations.
When one type of activity faces a setback, they automatically resort to other types and thus the
change of sectoral GDP growth is, at least partly, a reflection of the resilience of the large
majority of the small producers and low income groups. Industrial growth based on hired
labour is also expected to accelerate as labour is more easily available in years of bad
agriculture. However, the magnitude of such automatic response is not expected to be so large
as to have a sufficient counter cyclical impact.
An important factor which has contributed to the observed phenomenon is the nature of
government interventions and conscious policy efforts. For example, during the decline of
manufacturing growth rate during the end of nineteen nineties government tried to ease credit
and other services for accelerating agricultural growth.
It should be highlighted that a much higher GDP growth rate could be achieved if acceleration
of GDP growth in agriculture and industry took place simultaneously. In fact, such speeding up
of growth in both sectors is essential if the country's economy has to move to a higher growth
path. Lack of complementarities in the growth process cannot be afforded if a sustainable
growth of the economy is to be achieved. Policy efforts should not, therefore, slacken in one
sector when the other sector is observed to perform well.
It is often emphasised that volatility of GDP growth is low in Bangladesh. The observed pattern
of reverse movement of GDP growth rates of major sectors reduces the volatility of GDP
growth. But a higher trend growth of GDP and per capita GDP may be desirable even if this
implies more fluctuations in GDP growth.
Dr Rushidan Islam Rahman is research director at the Bangladesh Institute of Development
Studies (BIDS). Email:rushidan@bids.org.bd
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