This paper reviews the recent developments in growth theory and discusses their implications for Bangladesh. It starts with an exposition of the Neoclassical Growth Theory (NCGT) and then presents several variants of the New Growth Theory (NGT). The paper identifies the unresolved issues of economic growth and highlights the implications of the growth theories for cross-country growth regularities. The paper next examines Bangladesh's growth record in the light of recent growth discussion and identifies the areas of match and incongruities between the experience and the theories. The paper ends by drawing some lessons from the recent growth discussion for future growth efforts of Bangladesh.

The paper adopts a single equation approach to examine the real exchange rate behaviour and exchange rate misalignment in Bangladesh. The paper finds that real exchange rate and the macroeconomic fundamentals affecting real exchange rate form a cointegrating vector. It observes that trade liberization and increase in debt service burden result in a real depreciation of currency; while increase in capital inflow, improvement in terms of trade, and increase in government consumption of non-tradable result in a real appreciation of currency. Nominal devaluation has been able to partly retain its effect to have a real devaluation in the short run. Estimation of long run equilibrium real exchange rate reveals that our currency was considerably overvalued until late 1980s. However, real exchange rate broadly was in equilibrium during the 1990s.