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.
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 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:[email protected]