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BDS Current Issue Volume XLI, September 2018, Number 3

Aspects of the Poverty Scenario in Bangladesh During 2010-2016

Author: S. R. OSMANI

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This paper investigates a number of inter-related issues pertaining to the recent poverty scenario of Bangladesh – viz., (a) making sense of a marked slowdown in the pace of poverty reduction after 2010, (b) identifying the structural determinants of poverty reduction, and (c) examining regional divergence in the rate of poverty reduction. The analysis identifies falling real wages as the main proximate reason for both slowdown in poverty reduction and rise in income inequality in recent years. The underlying reason, however, is a massive upsurge in rural-to-urban migration which has exerted a downward pressure on real wages in the urban labour market, with repercussion on the rural labour market as well. The main determinants of poverty reduction in the recent years are found to lie in a couple of structural changes – (a) occupational shift, from relatively low-remuneration activities to relatively high-remuneration activities, induced by economic growth and (b) the spread of education, which enables workers to move into relatively high-occupation activities and to earn higher income within the same occupation. Divergent performance in terms of the same two structural factors – namely, occupational shift and the spread of education – are also found to explain a large part of the regional divide in the success in poverty reduction, although additional factors – related to geography and demography – may also be at work.

Payment Behaviour to Municipal Service Provision in Bangladesh


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The paper investigates the factors which are believed to influence the behaviour of households' willingness to pay for public services provided by municipal authorities in Bangladesh. The underlying concern of the analysis is a deeper understanding of the factors that are important for revenue mobilisation strategies in the municipalities of Bangladesh. The analysis is based on a survey of over six thousand households across all municipalities of Bangladesh, complemented with administrative data obtained from these local entities. A multinomial logit model is fitted. The model specification groups the household payment responses into three categories, i.e., willing to pay, reluctant to pay and opposed to paying the service charges while controlling for economic, social and demographic factors. The econometric model is estimated for each of three public services, i.e., water supply, solid waste management and street lighting facility, separately.  The results indicate that household willingness to pay is significantly affected by factors such as service charge, income, education and the municipal classification. An important policy insight is that service charge increases and other factors noted above can be important in strategies for local revenue mobilisation. 

Do Minimum Wages Reduce Employment? Some Empirical Evidence from Bangladesh


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Minimum wage policy is practiced in many countries with the intention of establishing a wage floor for low-wage workers having less bargaining power in the labour market. However, there is some evidence that such well-intended policy might have adverse effects on employment. This study employs a basic model where firm level employment data for a sample of 27 firms for the period 2000-2015 is used to analyse the effects of changes in minimum wage on employment in the readymade garments industry in Bangladesh. The main results suggest that higher minimum wages result in higher formal employment, particularly female employment, in these firms. The major policy implication of the study is to support the enforcement of suitable regulation to ensure competitive and fair wages as well as workers welfare.

An Empirical Analysis of the Ricardian Equivalence, Feldstein-Horioka Puzzle and Twin Deficits Hypothesis in Bangladesh


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This paper analyses the possibility of the twin deficits hypothesis existing in the context of Bangladesh. The novelty of this paper lies in its approach to link and check the validity of the twin deficits hypothesis in light of the Ricardian equivalence hypothesis and the Feldstein-Horioka puzzle based on annual time-series data stemming from 1990 to 2017. Fully-Modified Ordinary Least Squares (FMOLS) estimator, Vector Error-Correction Modeling and Granger causality estimating techniques are applied to provide statistical evidence regarding the nature of the simultaneity of the twin deficits. The corresponding results, although refuting the Ricardian equivalence hypothesis in the country, suggest in favour of rejection of the twin deficits hypothesis as perceived from a negative unidirectional reverse causality running from current account deficit to Bangladesh’s fiscal shortfalls. Thus, our results impose key challenges and policy implications for the government to take into consideration with respect to simultaneous reduction in these two macroeconomic deficits.

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