Trade barriers hinder job creation despite high growth

Say economists as they call for improved macroeconomic situation


FE REPORT | Published: April 04, 2024 23:49:52


Trade barriers hinder job creation despite high growth


Economists have pointed to a mismatch between Bangladesh's economic growth rate and job creation, calling it a "puzzle", as they argued high trade barriers are choking growth and employment opportunities in the country.
At a seminar held in Dhaka on Thursday, they identified trade openness, strong institutions, increased investment in human capital and private sector growth as key factors for local job creation.
The experts also cautioned about Bangladesh's stressed macroeconomic situation, saying stubbornly high inflation and currency devaluation are worsening the job market.
By upskilling and reskilling, they urged the authorities to accommodate displaced workers due to increasing automation.
World Bank Chief Economist for South Asia Dr Franziska Ohnsorge joined the seminar, titled 'Is South Asia Experiencing Jobless Development?', virtually.
She pointed to India's economic strength and the region's greater reliance on the public sector compared to other emerging markets as factors contributing to a brighter South Asia growth outlook.
At the programme, jointly organised by the South Asian Network on Economic Modeling (SANEM) and the World Bank, she noted that private investment growth in the region is lagging behind previous years and its contribution to GDP is lower compared to other developing countries.
"Trade openness and institutional quality are the most important factors for South Asian countries," Dr Ohnsorge said in response to a question.
She pointed out that South Asia has a lower-than-usual trade-to-GDP ratio, which needs improvement.
Dr. Ohnsorge acknowledged the success of Bangladesh's ready-made garment sector and India's IT sector, but argued that trade is a broader concept encompassing more than just these industries.
"High trade barriers are stifling Bangladesh's growth and employment prospects," she observed.
She also highlighted the risk of renewed currency pressure on countries with fragile foreign exchange reserves. "The depreciation of the currency has caused sustained pressure on borrowing costs and real incomes."
Dr Sayema Haque Bidisha, professor of Economics at the University of Dhaka and a panel speaker, pointed to the disparity in employment rates between men and women.
Bangladeshi data, she said, shows a slight increase in the employment ratio for men from 2017 to 2022. While there has also been an increase for women, the gap with their male counterparts remains huge.
She noted shifting trends in female labour force participation. While it is rising in rural areas, it is actually declining in urban settings.
Dr Bidisha attributed the decline in women's participation in the RMG sector to automation and the effects of the Fourth Industrial Revolution -- a phenomenon she termed "defeminisation".
Bernard Haven, senior economist for the World Bank Group in Bangladesh, outlined three key priorities for the country: job creation, the quality of jobs created and integrating vulnerable populations into the workforce.
Mr Haven emphasised the interconnectedness of job creation and macroeconomic issues, as he advocated for increased foreign direct investment (FDI) and fostering a positive business environment.
He also stressed greater investment in human capital. Citing the Human Capital Index, he said a child in Bangladesh is expected to be 46 per cent less productive than they could be if they had full access to education and healthcare.
In addition, Mr Haven underscored improved firm management capacity, facilitating childcare to encourage women's participation in the labour force, reduced migration costs and expanding social safety nets.
Dr Rubana Haque, vice chancellor of the Asian University for Women, pointed to a lack of upskilling and reskilling initiatives, especially in decent jobs and the RMG sector.
"There are so many seminars, so many discussions, but nobody is changing the policy," she criticised, further raising the question of what constitutes effective upskilling and reskilling programmes.
Dr Rubana Haque continued her critique by elaborating on the "low-price vicious cycle" ensnaring the RMG sector despite efforts to improve conditions. She urged RMG buyers to take responsibility for breaking this cycle.
She also pointed to a disconnect between the RMG industry and academia.
In the concluding remarks, Dr Selim Raihan, executive director of SANEM, drew on the World Bank report to highlight sluggish private sector investment growth across South Asia, despite a crucial role played by public sector investment -- which he found a cause for concern.
"Furthermore," Dr Raihan said, "both male and female labour force participation rates have declined."
He called for prioritising macroeconomic stability in the upcoming national budget.
Dr Raihan also talked about investing in human capital development, policy reform to address the current labour market challenges, efficient public investment and tax collection processes to improve social protection measures.

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