Changes of GDP in the Bangladesh economy

Bangladesh is a small country of 144000 sq km, It is one of the least developed countries, It has miserable poverty, high illiteracy rate and a gigantic population, of 141340476 ( july 2004 est) Our economy is sick due to high inflation rate and seasonal disaster. The GDP is the , chief indicator of an economy. The GDP of Bangladesh shows that Bangladesh economy was backward. After independence, the size of real GDP, per capital GDP and their growth rate was small. Many problems are responsible for this unsatisfactory GDP. Such as domestic food production, low exports, increasing imports, failure scarcity of gas, scarcity of much foreign direct investment defective Banking system, high inflation rate, policy instability, poor infrastructure, ineffective taxation Etc. If these problems are solved our GDP’s dynamic changes will come.

GDP means (Gross Domestic product) GDP can be measured by total value of all goods and services produced in a country for a specified period (most commonly per year)

On the other hand GDP is the market value of all the goods and services produced by labor. GDP can be estimated by the two followings:

GDP = Consumption+ Investment + government expenditures+ net exports.

GDP= GNP- The net inflow of labor and poverty in comes from foreign countries.

There are two types- Nominal GDP and Real GDP.

Now we can discuss-

There are two common and popular measures for the estimate of economic growth rate, as gross domestic product (GDP) and Gross National Product (GNP). The growth of GDP is usually a good indicator of economic growth.

The GDP structure of Bangladesh is consisted of three main sectors- These are-

(i) Agriculture (ii) industry and (iii) services.

Agriculture sector includes corps, forestry livestock and fisheries etc. The main agricultural food products are cereals pulses, sugar, milk, meat, fish, fruits, vegetable oil etc. And the other industrial crops, Jute, tea, tobacco, cane etc

industry sector : There are three types of industries in Bangladesh such as- (i) Large scale (ii) Medium scale and (iii) small and cottage industries.

After independence, this sector increases but it was not satisfactory. But at present, the scarcity of gas, the scarcity of electricity, the increment of industry sectors is stopped especially the manufacturing industries

Service:

It is the largest sector in contribution of the percentage contribution to GDP. it includes- construction, utility, transport, trade service, difference banking insurance etc. Apart from , readymade garments frozen fish, tea, feather, Jute, etc, are exporting goods of our GDP. Page- 1

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Literature Review

Dr. Debapriya Bhattachariya (Executive Director of contra for policy dialogue (CPD), Recommends that if the GDP growth rate of Bangladesh rises to 8 percent and sustains this position constantly, Bangladesh may develop in 2010. By raising the growth rate of exports to 20.83% and reducing the growth rate of imports to 17.58%, we can achieve this desirable growth rate of GDP.

Most per capita income growth is explained by growth in total factor productivity rather than by capital accumulation (Dornbush,1991,1992)

Our development is very much under stated. Many emerging areas were not taking into account in calculating the GDP. He told a statistical conference at NEC conference room, expressing his dissatisfaction over lack of updated data. Dr. Saifur Rahaman, states that,

GDP of Bangladesh to grow by 5.3% and IMF set the level at 5.4% Scaling down this earlier estimation due to crop losses by recurrent floods and increased petroleum price. ADB:

Statistics have to be realistic should not be politically motivated. He said referring to the claim by the previous government that the country had become self-sufficient in food production (2006). Finance minister: AMA Muhith :

He stressed the need for revising the statistical base to bring new and emerging areas into the national accounts, aimed at having a more realistic GDP based on the changed economic situation.

The finance minister said the planners could have evolved a plan to preserve the surface water to expand agriculture irrigation but don’t have about information of surface water.

Bangladesh needs 8% growth rate at a raw of 20 years to reduce poverty ot 15% from 40% plus now. AMA. Muhith

GDP Growth alone can not drop the poverty, it needs a broad based policy and setting up of more and more labor intensive industries. AMA. Muhith.

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A positive relationship between the rate of inflation and capital accumulation which in turn implies a positive relationship of the rate of GDP Growth. They argue that since money and capital are substitutable an increase in the rate of inflation increase capital accumulation by shifting portfolio from money to capital and thereby, stimulating a higher rate of GDP growth as well as economic growth. (Gregorio 1996), Mundell and Tobin (1965)

A negative and nonlinear relationship between the rate of inflation and economic growth through the new growth theory mechanisms controversially. Fischer and Modigleani (1978)

Inflation restricts GDP growth largely by reducing the efficiency of investment rather than its level. Malla (1997)

Low and stable inflation promotes GDP growth and vice versa (Mubrik 2005)

The evidence of the relationship between trade and macro economics policy and economic growth using cross- sectional data for 35 developing country. It is observed that sustainable policy promote growth through relatively stable real exchange rate that are either fully aligned or under valued for prolonged periods of time. Export- promotion polices were found to be more effective in generating growth than policies that remove import restriction. How ever country to conventional wisdom. Lopez found that capital accumulation is stimulated by export restriction and is not directly sensitive to economic instability. (Lopez 1991)

Alternative measures of trade orientation and trade distortion to examine the role of trade policy in explaining cross – country growth differential. His study us is based on a model where the country’s capacity to absorb new spillovers of world technology is negatively dependent on the level of trade distortion. In other words, countries that liberalize trade trend to accumulate knowledge at higher rate and grow faster. In his basic empirical model, Edward expresses the average growth rate of per capital real GDP as a function of the investment GDP ratio. The Gap between the world’s and countries stock of knowledge and an index of trade intervention of openness of the economy. The main result of obtained from cross- sectional data for 30 developing countries. (Edward 1992)

The effect of trade policy reform one economic performance in developing countries using a multivariate econometric model. The performance indicators are: growth of GDP, growth of merchandise exports, the real exchange rate, growth of labor production, balance of trade,

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growth of merchandise imports, and growth of manufacturing value added. This study suggest that lagged exports growth leads to GDP growth and vice-versa.(Clark and patrick-1992)

Freer trade expose domestic firms to foreign competition and forces them to rationalize their activities. If provides domestic firms access to wider markets and enables them to gain technical efficiency by exploiting both economic of scale and economics of scope. (Romer- 1989)

The limitation of trade policy reform the contest of developing countries. He draws the main reason for trade reform in developing countries from the domain of political economy. First, a macro economics crisis encourages politicians, to embrace trade policy reform the political cost of understanding trade reform are perceived to below during a national economic crisis, second, foreign creditor particularly the IMF and world bank play an important role in persuading cash- starved government to undertake trade policy reform. ( Rodrik-1992)

Analysis

In the part of analysis we can say that our development is understated. In the view of ADB our GDP is 5.3% but IMF set the level at 5.4%.

It is observed that sustainable Policy promote growth through relatively stable real exchange rate, that are undervalued prolonged period of time. The most per capita income growth is explained by the growth in total factor of productivity. But our productivity is relatively low.

GDP growth mostly depend on broad based policy and setting of labor intensive industries. so we have to increase the labor intensive induces not capital intensive.

We can evaluate one countries performance in developing countries using multivariate econometric model the performance indicators are :

growth of GDP, growth of merchandize export, the real exchange rate, the growth of labor productivity, the balance of trade, growth of merchandise imports, growth of manufacturing value added. We can say that export growth leads to GDP growth and vice versa.

There is a positive relationship between GDP growth and inflation rate. If money supply increases, Inflation rate will be higher. As a result capital accumulation will be raised and it will shift to higher rate of GDP growth as well as economic growth.

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We can measure, the role of trade policy in explaining cross- country growth differential through trade orientation and trade distortion.

Low and stable inflation rate promotes GDP growth and higher instable inflation rate decrease GDP growth.

We can develop GDP growth only where we will develop the sector of GDP. Such as- Agriculture, Industry, service. Ours GDP is now based on agriculture so, it should be shifted to industry so we have to develop the industry sectors. For this water, electricity, gas should be provided enough.

Political instability is one of the obstacle for industry growth through training of human resources. We should also promote another sector of GDP: services.

Freer trade expose domestic firms to foreign competition and forces them to rationalize their activities. The limitation of trade policy reform is cased from the domain of political economy of developing countries. A macro economics crisis encourages politicians interferer the trade policy reform. The IMF and world bank play an significant role encouraging cash starved government to understand trade policy reform.

New and emerging areas should be taken into the national account and aim that having more realistic GDP based on the changed economic situation.

A plan should be taken to preserve the surface water to expend agriculture irrigation and have to provide proper information about surface water.

The real growth of the broad agriculture sector for financial sector is professionally estimated at 4.63%. the sector and sub-sector of agriculture include:

Agriculture and Forestry Financial year

(2008-2009)

growth rate- 4.81%

It is increased about 2% from the previous year,

Fishery- 4.57%

It has increased the production 5.38% higher than that in the previous year.

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Industry sector: The growth rate of industry sector is provisionally estimated at 5.93% for financial year 2008-2009 compare to 6.78% for financial year 2007-2008 the performance of sector of industry are mentioned.

Findings

Bangladesh Bureau of statistics has provisionally estimated the GDP growth rate to 5.88 percent in FY 2008-2009. The GDP growth rate is assumed slightly lower compared to the previous fiscal year due to the diverse effects of global recession and the decline of growth in manufacturing and wholesale and retail trade sectors. It may be noted here that, according to the final estimate, the GDP growth rate was 6.19 percent in FY 2007-2008, The Medium Term Macroeconomic Framework (MTMF) envisages the real growth of GDP for the fiscal year 2009-2010, 2010-2011 and 2011-2012 are 5.5 percent, 6.0 percent and 6.5 percent respectively.

The growth rate of agriculture sector is estimated an increase of 2 percentage points in FY 2009-2009 Growth fate of industry sector, in particular, manufacturing sector is assumed to decline slightly. In spite of growth in some sectors, overall growth in services sector estimated to decline. The GDP growth rate and per capita GDP growth at constant prices for FY 2003-2004 FY 2008-2009 are shown in graph 2.1. Table 2.1 shows the GDP, GNI, Per Capita GDP and GNI at Current Market Prices

Table 2.1 GDP, GNI, Per Capita GDP and GNI At Current Market Prices

Item

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09p

GDP (In Croer Tk.)

332973

370707

415728

472477

545822

614943

GNI (In Croer Tk.)

350526

389635

442935

507752

594212

683231

Population (In Crore)

13.52

13.70

13.88

14.06

14.24

14.42

Per Capita GDP (In Tk.)

24628

27061

29955

33607

38330

42638

Per Capita GNI(In Tk.)

25926

28443

31915

36116

41728

47373

Per Capita GDP (In USS)

418

441

447

487

559

621

Per Capita GNI (In USS)

440

463

476

532

608

690

Source: Bangladesh Bureau of Statistics (BBS): Provisional.

From the list we find the increment of GDP of Bangladesh from year to year.

Sector wise Growth of GDP:

The table shows the sectoral growth rate GDP at constant prices for the fiscal year 2003-2004 to 2008-2009. The overall growth rate of GDP at constant price is 5.88% FY 2008-

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2009, which was 6.19 percent in FY 2007-2008.

Table : Sectoral Growth Rate of GDP at Constant Prices (Base Year: 1995-1996)

Sector/sub-sector

2003-04

2004-05

2005-06

2006-07

2007-08

2009-09p

1. Agriculture &Forestry

a. Crops & vegetables

b. Livestock

c) Forestry

4.38

4.27

4.98

4.18

1.80

0.15

7.23

5.09

5.23

5.03

6.15

5.18

4.69

4.43

5.49

5.24

2.93

2.67

2.44

5.47

4.81

5.02

3.46

5.53

2. Fishery

3.09

3.65

3.91

4.07

4.18

4.01

3. Mining & Quarrying

a. Natural gas &crud petroleum

b. Other mineral resources

7.68

8.98

5.68

8.38

2.02

7.40

9.26

9.52

8.84

8.33

8.03

8.80

8.94

8.26

10.01

9.37

9.69

8.88

4. Industry (Manufacturing)

a. Large & medium- scale

b. Small-scale

7.10

6.95

7.45

8.19

8.30

7.93

10.77

11.41

9.21

9.72

9.74

9.69

7.21

7.26

7.10

5.92

5.65

6.59

5. Electricity. Gas & Water

a. Electricity

b. Gas

c. Water

9.09

9.19

8.81

8.00

8.90

8.58

8.87

14.44

7.67

7.45

9.37

7.55

2.10

1.08

7.37

7.08

6.77

6.68

7.72

6.00

4.52

3.64

8.63

8.91

6. Construction

8.25

8.31

8.31

7.01

5.68

5.72

7. Wholesale & Retail Trade

6.57

7.06

6.75

8.04

6.83

6.35

8. Hotel & Restaurant

7.05

7.14

7.45

7.52

7.77

7.58

9.Transport, Storage & Communication

a. Surface transport

b. Water transport

c. Air transport

d. Support transport services, storage

e. Post & telecommunication

6.21

6.02

1.16

0.84

-1.35

14.56

7.97

4.25

1.95

2.94

2.92

31.79

7.98

4.14

1.95

5.25

6.13

26.70

8.03

4.18

1.73

2.01

8.93

23.29

8.55

4.54

2.54

6.20

8.45

21.64

7.61

4.81

2.20

15.33

8.72

15.28

10.Financial Intermediations

a. Bank

b. Insurance

c. Others

7.02

6.73

8.06

6.91

8.92

9.11

8.34

8.51

8.50

8.19

9.16

10.94

91.18

9.34

8.21

11.62

8.89

8.38

10.03

12.47

8.00

7.22

9.88

12.35

11. Real Estate, Renting &other Business Activities

3.58

3.65

3.69

3.76

3.79

3.81

12. public Ad. & Defense

7.06

8.02

8.15

8.41

6.21

7.02

13. Education

7.69

7.90

9.05

8.96

7.80

8.05

14. Health and Social Work

6.17

7.40

7.79

7.64

7.02

7.55

15.Community, Social and Personal Services

3.97

4.05

4.09

4.58

4.62

4.68

Growth Rate (%)

6.27

5.96

6.69

6.43

6.19

5.88

Source: Bangladesh Bureau of Statistics. p- provisional

Sectors of GDP

1. Agriculture Sector:

The broad agric sector, comprising mainly of agriculture and fisheries, contributes about 20.60 percent of the total GDP in FY 2008-09. The real growth rate of the broad agriculture sector for FY 2008-09 is provisionally estimated at 4.63 percent. The sectors and sub-sectors performance under broad agriculture sector are presented below:

Agriculture and Forestry: The growth rate of this sector for 2008/09 is provisionally

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estimated at 4.81 percent which was 2.93% in FY 2007-08. The growth rate of agriculture sector is estimated an increase of 2 percentage points in FY2008-09 due to the increase in production of crops and vegetables. The production of minor crops, which include pulses, spices, sugarcane, fruits, vegetables and tobacco, is expected to be around the level of preceding year.

b) Fishery:

Total inland and marine catches as estimated by the Directorate of Fisheries (DOF) will he 2.70) million metric tons in FY2008-09 which was 5.38 percent higher than that in the previous year.

2. Industry sector:

The broad industry sector comprises of (1) mining and quarrying, (iii) electricity, gas and water supply and, (iv) construction

3. Services Sector

Total output of the services services sector consists of the collective outputs of the wholesale and retail trade: hotel and restaurant: transport, storage and communication: financial intermediations: real estate, renting and business activities: public administration and defense: education: health and social work, and community, social and personal services activities.

Policy Requirement

³ We have to promote exports growth because lagged exports growth leads to GDP growth and vice-versa.

³ If a county like Bangladesh want to raise export growth, it would have to grow merchandise exports, labor production real exchange rate maintain balance of trade, merchandise import.

³ Our government should have to introduce free trade policy. Trade is an alternative of technological advance . A country that eliminates trade restriction will, therefore experience the same kind of economic growth that would occur after major technological advance. When a country export wheat, import steal, the country benefits as if it have invented a technology for turning wheat into steal.

³ We need to reduce our consumption to grow GDP growth by increasing saving. We know that saving is equal to investment. If we invest our saving, our GDP will be increased. We have to conscious about saving increment.

³ Productivity is vital indicator of GDP. It means the total amount of goods and services by labor per hour. Productivity’s key role is the determination of standards of living.

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³ Government should implement the policy of- one district one product. That is why, a district that is appropriate for producing one product, it should be emphasized on that product so that the district can be self-sufficient of that product.

³ Political stability should be ensured by government. As a result foreign investment will be expedited. Political violence and anarchy hampers foreign investment and industrial development.

³Government should provide gas, electricity and water supply adequately. The scarcity of these items impedes the production of industry and expansion of new industry

³ Government should provide easy term loan for farmers.

³ Government should also provide seeds, fertilizer in times. As a result, their production capacity.

³Transport system must be developed so that goods can be transported easily from one place to another. As a result the production cost will be reduced.

³ Integrated agriculture system should be introduced, so that the farmer can produce more goods.

³ High breed- crops have to be invented for farmer so that they can produce more food and provide for the society.

³ The government project one-home, one- firm should be implemented, so that they can self- dependent and contribution to GDP growth.

³Construction of new roads and repairmen of damaged roads.

³ Modern technology such as tractor, power pump , harvester must be applied in agriculture.

³The silted bed river should be excavated for water supply.

³ Unused land have to convert into cultivable land.

³ Training should be provided to labor in industry sector.

³ Proper marketing policy should be introduced for agricultural product so that the farmer can get the proper price of the product. As a result they will be encouraged.

³ We have to eliminate the marketing intermediate.

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In the end we can say that, Recent trade of Bangladesh decreasing with its border countries and trade volume is increasing with far distance countries, such as, the case of china and india. Therefore, to find out the impacts of gravity model on the trade pattern of Bangladesh, it’s imports is tested on home GDP, partner country’s GPD, Geographical distance between home capital city and partner country’s capital city, home population and partner country’s population.

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The paper finds mixed results for the impact of Bangladeshi GDP on its imports. If population is not consider GDP shows positive relationship with imports of Bangladesh. In a quantitative focus, import criteria show that it influences the domestic production very little because Bangladesh mostly imports consumer goods rather than capital goods. Further population of home country is highly significant impact on import of Bangladesh. It in turn implies that Bangladesh is not capable of producing enough in proportion of increasing demand due to population growth. Rather partner country’s GDP has significant positive impact on the imports of Bangladesh partner countries. Most importantly it is found that geographical distance has significant impact on imports of Bangladesh which means transports costs and other transaction costs, such as, the probability of surviving in fact of perishable goods etc, still have significant impacts on it’s imports. But in recent phenomenon the imports are more influenced by profitability, easy trade, procedures, product delivery time etc rather than the geographical distance. As a consequence, policy makers need to conduct further serious studies to find out the relationship , if any between trading pattern , geographical distance and trade deficits of Bangladesh. policy makers also need to carefully consider the future alarming situation for trade balance of Bangladesh. If the imports increases continuously in such a pattern that the rate increases 5 to 8 times more in respect of population increases and at the same time the ration of capital goods in proportion of total imports decrease.

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Dear sir,

We are the group members of Simon Kuznets, Our assignment topics is GDP growth and its structure. you told us to prepare and submit it in the from of soft or digital copy and also hard copy. We have prepared all the things according to your instruction.

Now we want to submit the report to you.

Please accept our report and oblige thereby

Your obediently

The group members of

Simon Kuznets.

Executive Summary

GDP means gross domestic product. So. GDP= Consumption + Investment+ Govt. purchase+ Net export. GDP is used to measure the economic growth of a country. The living standard depends on the growth of GDP and its structure. Our Country’s GDP is 5.88%. It is relatively low. The MIMF (the medium term macroeconomic framework ) envisages that the real growth of GDP for the fiscal year 2009-2010 is 5.5%. We have to increase our GDP growth by developing agriculture sector, industry sector and overall growth in services sector. If we can not develop our GDP our productivity will be lower and lower. Our living standard do not increase and we have to lead poor life.

Table of content

Topics

Page No

Introduction

01

Literature Review

02-04

Analysis of the topic

04-06

Findings

06-08

Policy Recommendation

08-09

Conclusion

10