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Bangladesh Priorities: Trade, Raihan, Ferdous and Wong

Research by Selim Raihan, economics professor at the University of Dhaka and executive director of the South Asian Network on Economic Modeling (SANEM), and Farazi Binti Ferdous, research fellow at SANEM, highlights trade policy reforms that can benefit Bangladesh.

 

Strategy Takas of benefits per taka spent
Trade liberalization 10
Trade facilitation 2

Many people have strong feelings about trade liberalization, partly because of the way the costs and benefits of such policies are distributed. The costs are relatively small, but they are concentrated and pronounced in specific sectors where people might lose their jobs and need retraining. The overall benefits, on the other hand, can be incredibly large, but are spread widely across an entire economy and population. As consumers, all people benefit from cheaper goods from free trade that lower the cost of living, but the benefit to each person is modest.

While more liberal trade policies would hinder inefficient sectors, they would help promote much higher growth in the most efficient and productive ones. Essentially more free trade would make Bangladesh focus its efforts on what it does best. The majority of industries would see increases in output, because the entire economy would have access to cheaper goods and services.

The economists examine the economic impact of a 50-percent reduction in current tariff levels. The model shows that the textile and clothing sectors—industries where Bangladesh has comparative advantages—would benefit most, with an estimated growth of 5-6 percent. Liberalization would also bring an associated gain in income for everyone in the country of about 1-2 percent—this is the large overall benefit that would be spread widely across the entire population.

While not all would gain initially, the overall impact of liberalization would bring a significant and permanent boost in Bangladeshi GDP. Each taka spent toward liberalizing trade would do 10 takas of good.

The analysis also explored a second strategy: broad investment in better infrastructure and transport procedures to facilitate trade. High transactions costs from transit and customs procedures still slow formal trade in many areas. These inefficiencies weaken links to the global economy and can diminish export competitiveness and foreign investment.

Bangladesh’s international standing in various measures that are related to ease of trade reflect these weaknesses—the country ranks 148th in the U.N.’s International Supply Chain Connectivity index, lagging far behind regional competitors like Sri Lanka and India. When it comes to the World Bank’s index that measures ease of cross-border trade, Bangladesh ranks 174th out of 189 economies.

The authors examined ways to simplify trade processes, which would increase transparency and efficiency while minimizing transactions costs. Specific measures would include improving coordination of exit and entry posts at border crossings, as well as spending to improve road and rail transport and connectivity. In all, each taka spent on trade facilitation would yield about two takas of benefits.