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BDS Current Issue Volume XIX, Nos. 2 & 1 1991

Special Issue on Industrial Policies and State of Industrialization in Bangladesh

Author: Zaid Bakht

An Industrial Strategy for Industrial Policy : Redirecting the Industrial Development of Bangladesh in the 1990s

Author: Rehman Sobhan

Whilst evidence on the absolute magnitude and relative share of the manufacturing sector in the economy is still indeterminate, the varieties of available data appear consistent in suggesting that in the eighties there has been little in the way of dynamic growth or structural change in the industrial sector of Bangladesh. How far has this weak industrial performance owed to inadequacies in the industrial policies?Past attempts at establishing causality as between data on performance and the prevailing policy regime has been hardly definitive for Bangladesh. The present paper discusses three central limitations of Bangladesh’s past industrial policies: (i) the absence of strategic vision in the formulation of industrial policies, (ii) prevalence of ideological predilections over pragmatic and empirical considerations specially in the matters of ownership of enterprises and (iii) the abortive attempt at promoting private industry through public credit.Drawing on the lessons from the experiences of China, India and the East Asian Newly Industrialising Countries (NICs), a redirection of Bangladesh’s industrial policy is suggested essential elements of which include (i) pursuance of rural oriented development strategy for broadening the market for domestic industry  (ii) prior identification of industries to be developed to serve the domestic market and those to serve the external market (iii) building up an indigenous entrepreneurial base and investible surplus in the industrial sector through the provisions of domestic captive market and attractive profit rates in industry compared to those in intermediation and (iv) simultaneous promotion of export oriented industries through purposeful and planned intervention based on carefully studied analysis of the changing structural features and comparative advantage of the domestic economy in relation to the dynamics of global economy.

An Assessment of the Impact of Industrial Policies in Bangladesh

Author: Gian S Sahota

n assessment of the impact of policies on industrialization in Bangladesh has been made within the framework of the theory of policy. The analysis includes four types of comparisons: “before and after” comparisons (using the NIP82 as a landmark policy reform); “with and without” comparisons (a counterfactual approach using macro data and micro-level panel data for over a decade); comparisons of targets and achievements (based on 5-year plans); and inter-country comparisons (with relevant neighboring countries). The objective variables include output growth, employment, investment, productivity, among others.The findings reveal that industrial investment has decelerated; industrial output has stagnated; industrial productivity has fallen; and industrial sickness has increased. Technology gap against neighboring countries has widened. Inefficiencies have spread all around. Policies are, at best ineffective and, at worst, they have had negative impact on industrialization and overall national growth. One of the policy malice identified is unending and very high protection, especially through bans and tariffs instead of subsidies, which has created and is sustaining high-cost industries, leading to debilitating sickness. Denationalization without the accompanying competitive environment and a through prior analysis of the assets and liabilities, mode, extent, logistics, and a scrutiny of prospective entrepreneurs has failed to promote industrialization. Assignment of import permits and licenses of all kind on bases other than competitive entrepreneurialship of the auctioning type promoted rent-seeking and corruption, which, coupled with smuggling, inhibited industrial growth. Perpetual sustenance of depressed firms, public or private, has been inimical to industrialization. Above all, there has been neglect of technology (broadly defined), under the illusion that any talk of technology is a case for capital-intensive industrialization. A quantum increase in industrial R & D in Bangladesh is urgently needed to search for, import, and adapt similar technologies. In short, a policy implication of the findings is a redirection from over-reliance on fiscal and financial incentives to lowering real costs through technological incentives in Bangladesh.

The effect of Labor Laws and labor Practices on Employment and Industrialization in Bangladesh

Author: Kathryn H Anderson, Najmul Hossain and Gian S Sahota

Labor laws and industrial relations have an important bearing on industrial growth and labor welfare. While there has been much concem with fiscal and financial incentives to small and large industries in Bangladesh, very little economic analysis of the nature and consequences of labor laws and labor practices has been done. This paper addresses that issue.The paper sets up the stage by a historical survey of labor legislation in Bangladesh. From that, it selects three major areas—each an admixture of laws, institutions, and practices—for in-depth analysis from the viewpoint of their impacts on employment, wages, and industrial growth : (a) a theoretic-empirical analysis of Bangladesh’s minimum wage policy; (b) the nature and causes of industrial disputes in recent years; and (c) an empirical analysis of the country’s labor unions.Most findings are consistent with theoretical predictions. An implication is that some reform in all the three areas is due. The survey of the labor code suggests that Bangladesh has kept up with its neighboring countries in labor legislation relating to work injury, maternity benefits, and labor welfare in general, but that in the progress towards social security Bangladesh has fallen somewhat behind its sister countries of South Asia. A policy implication of the analysis of the existing minimum wage law is a possible substitution of a national, an urban, or a few regional minimum wages for the regard to industrial disputes, political factors have become a dominant cause of them. The prospects for a congenial climate of industrial relations will advance with an improvement in labor productivity and political accountability. Finally, the paper measured small negative effects of unions on the employment of skilled labor but detected no wage increases resulting from union activity. Firms may be avoiding the potentially negative employment effects of having unionized labor by substituting more contract labor for wage labor in unionized firms. Their ability to substitute in this way reduces the negative employment effects, but corrodes the effectiveness of unions.

Effective Rates of Assistance in Bangladesh Economy

Author: Gian S Sahota and Mainul Huq

The concept of effective rate of assistance (ERA) employed in this study is an extension of the conventional measure of effective rate of protection (ERP). The ERP accounts only for trade assistance. The ERA treats both trade and domestic assistance. Concomitantly, in the calculation of ERAs, the assistance to both material inputs (to which the ERP has been limited) and primary inputs has been taken into account.According to the theory of policy, controllable instruments, namely statutory ERAs in the present case (as distinguished from endogenously determined realized ERAs) are to be related to the objectives of policies. A meaningful relationship between instruments and objectives can be tested essentially in a dynamic context. Accordingly, a 14-year time-series of ERAs at the four-digit industry level was prepared.The findings reveal that, paradoxically, instead of a decline in ERAs after the New Industrial Policy 1982 (NIP82), for a bulk of commodities ERAs actually increased. Possible reasons for the increase are discussed. ERAs vary a lot across industry types. The differences of ERAs as between small and large industries are insignificant (one of the main factors offsetting favorable fiscal gains to large industries being the labor code). There is little evidence to show that the highly assisted industries have reaped relative gains in expansion, scale economies, or productivity.

Technical Efficiency in Bangladesh Manufacturing Industries

Author: K L Krishna and G S Sahota

When policies and plans are employed to influence the structure of manufacturing industries, as is the case in Bangladesh, knowledge of the technical efficiency of firms by size is critical for formulating policies. No other econometric methodology is more suited for discerning differences in technical efficiency at the micro level, in particular as between small and large enterprises, than the translog stochastic frontier production function. In the present paper, the indicated flexible production functions are applied to 17 four-digit manufacturing industries in Bangladesh, using the firm-level panel data of the CMI Merge File. By virtue of the availability of panel data (rare for enterprises), technical efficiency.Empirical results are quite striking: Fifteen of the 30 industries (17 studied by the TL function and 13 by the CD function, the latter because of shortage of observations) experienced no significant productivity change over the 12-year period. Only 5 experienced significant acceleration in TFP change. Several suffered from deceleration. The overall picture that emerges is one of stagnation in productivity. Technical efficiency of small firms is lower than large ones. An exercise to explaining the inter-firm differences and temporal variations in technical efficiency in terms of scale of the enterprise, skill composition of the labor force, capital intensity, and material intensity failed because the explanatory power of the regressions is found very low and the explanatory variables have insignificant coefficients for most of the industries.

South Asian Development Model and Productivity in Bangladesh

Author: G S Sahota, Mainul Huq, Najmul Hossain and K K Sanyal

The first-generation South Asian Development Model overemphasized capital formation per se and scarcely recognized the critical role of productivity and technological change in economic development. While some rethinking has taken place in recent years, South Asian countries still do not seem to have paid productivity the attention it deserves as a source of economic development. In this paper, an attempt has been made to assess what has been happening to productivity in Bangladesh manufacturing.Using the panel data from a merge file of newly cleaned-up tapes of the Census of Manufacturing Industries (CMI), estimates of year-to-year changes in total factor productivity (TFP) in Bangladesh manufacturing industries over a period of about a dozen years have been made. The estimates are based on the growth-accounting method, as distinguished from the estimated production function method. They are done by size-class of firms at the four-digit-industry level. It is found that much less than increasing, TFP in the manufacturing industry has declined in Bangladesh. A brief look is also taken at factor intensities. The findings provide evidence suggesting correction in some of the impressions held in several quarters about the relative factor intensities and factor productivities between small and large enterprises of Bangladesh.

Investment, Employment and Value Added in Bangladesh Manufacturing Sector in 1980s: Evidence and Estimate

Author: Zaid Bakht and Debapriya Bhattacharya

The article attempts to review systematically the evidences on investment, employment and value added in Bangladesh manufacturing sector relating to the last decade. It also presents an independent estimate of manufacturing investment and value added for 1987/88 based on enterprise level survey.It has been established that both public and private manufacturing investment and value added virtually stagnated, if not declined, in absolute and relative terms during the eighties. However, during this period employment in manufacturing sector recorded a rise. This apparently conflicting picture of stagnating investment and value added levels and rising employment scenario is partly explained by incomplete assessment of the fist two parameters, which was also indicated by the authors’ independent estimates. The evidences quite convincingly project a static picture of the ‘residual’ public sector following denationalisation measures of the early eighties. Within the private sector, the observed growth in employment is attributable mainly to the informal sector. The evidence seems suggestive of static or perhaps declining productivity levels although no firm conclusions can be drawn in this respect in view of the limitations of the data sources.

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