Author
Abstract
There is no denying the fact that the recent global economic crisis has profound implications for the developing countries like Bangladesh. This paper has explored the impacts of global economic crisis on the economy of Bangladesh in a general equilibrium framework. The CGE model for Bangladesh economy is developed with a Social Accounting Matrix for the year 2007 as the database. Analysis of the trend and pattern of the global economic crisis suggests that global economic crisis led to some negative impacts on the Bangladesh economy through two major channels: slumps in exports and remittances growths. Three simulations have been conducted considering export and remittance shocks and their short term and long term effects are explored under different factor market closures. The results of the simulations suggest that during the global economic crisis the growth in total exports was much lower than those during pre-crisis periods and the export growth was mainly driven by the growth in non-RMG sectors. Under the export simulation, the woven and knit RMG sectors would experience contraction and there would be some expansions of the non-RMG export oriented sectors. Because of the reduced rates of growth in overall exports as well as much slower growth in knit and woven RMG sectors, there would be some negative impacts on the economy in terms of falls in consumption, exports, imports and households’ consumption and welfare. The poorer households would suffer more as a result of negative export shock during the global economic crisis. Furthermore, the reduced rate of growth in remittances during the global economic crisis would contribute to the fall in household income and real consumption. Demand for goods would decline and, as a result, domestic demand and import would decrease. Due to the fact that reduction in inflow of remittance would contribute to depreciation of the real exchange rate, there would be a positive impact on the growth of exports. All household categories would encounter fall in real consumption and welfare. The households with higher initial endowments of remittance incomes would experience larger fall in real consumption and welfare. The scenario depicting the combined effects of the export and remittance shocks suggests that the negative effects would aggravate under this scenario. In all cases, however, the short term negative effects would be larger than the long term negative effects. The upshots of the above discussion point us to the fact that the economy of Bangladesh was affected during the global economic crisis, when growth in exports and remittances slowed down by great margins and the economy suffered. Several policy implications may emerge from the aforementioned analysis of the simulation results. It is evident from the aforementioned analysis that there was a very low growth of exports of woven and knit RMG from Bangladesh during the economic crisis. This resulted in low growth in total exports. The effects on consumption and welfare of the households were negative. There is a fear of continuation of this sluggish growth in exports of woven and knit RMG in the future. Therefore, there is a need for the policy makers to take necessary steps to enhance exports from these two sectors. These export oriented sectors suffer from serious supply side bottlenecks, such as lack of backward linkages, weak physical infrastructure, lack of skilled manpower, lack of access to capital, high lead time, high cost of doing business, etc. There is a need to bring down these supply side constraints which can enhance the competitiveness of these sectors. It is also true that the export basket of Bangladesh is highly concentrated in favor of the woven and knit RMG. There is a need to diversify the export basket so that the reliance on only a few sectors is reduced and the economy becomes less vulnerable to any external shock. The simulation results in this paper have convincingly suggested the strong welfare enhancing effects of remittance in Bangladesh. The growth rate of remittance inflow reduced quite drastically during the global economic crisis. Also, looking at the trend of annual migration from Bangladesh it appears that there is a high risk of further reduction in inflow of remittances. Therefore, there is a need to take necessary measures for encouraging larger inflow of remittances and greater outward migration. Measures such as reducing the hassles of sending remittances through formal channels and providing appropriate guidance and support for channeling the remittance money to productive investment could be very useful. Also, government needs to negotiate both multilaterally (at WTO) and bilaterally for the enhancement of export of manpower from Bangladesh.
Suggested Citation
Raihan, Selim, 2012.
"Implications of the global economic crisis for the Bangladesh economy,"
MPRA Paper
38616, University Library of Munich, Germany.
Handle:
RePEc:pra:mprapa:38616
Download full text from publisher
Corrections
All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:38616. See general information about how to correct material in RePEc.
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
We have no bibliographic references for this item. You can help adding them by using this form .
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .
Please note that corrections may take a couple of weeks to filter through
the various RePEc services.