Changes in Policy Framework and Total Factor Productivity Growth in Bangladesh

The paper relates changes in the policy framework with growth of total factor productivity (TFP) in Bangladesh. The identified policy regimes provide the major ‘turning points’ in the country’s economic history. The analysis of the sources of growth uses the growth accounting framework to measure the relative contributions of labour and capital as well as that of TFP to GDP growth in Bangladesh over different policy regimes. The estimated TFP growth rates have been further analyzed to examine the impact of inflation, public consumption, real exchange rate (REER), and trade openness. The negative role of inflation is intuitive and makes the latter a prime focus of policy targeting, especially in recent times, when inflation has remained persistently high and rising. Both REER and trade openness turn out to be insignificant though with correct signs. Public consumption appears to be positively correlated with TFP growth, which may appear as counter-intuitive, but seen in the factual context of the country’s well-contained growth, high demand for such expenditure, and excess liquidity in the banking system, it can be easily interpreted.