What explains Bangladesh’s economic transformation? Synergies and tipping points

For the past few months, I have been doing some research on the history of economic policy making in Bangladesh since independence. This project has been inspired by two things.

First, I have had a long-standing interest in processes of policy formulation and implementation, not just documenting policies and analysing their impact, but also understanding what leads to such policies and what factors shape the quality of their implementation. You can say I am interested in the stories behind the stories. 

Second, this year, we have seen a plethora of writing on Bangladesh's remarkable development performance, including its economic transformation. Some have called this a miracle; others have found this a paradox.

These papers have talked about many actors, NGOs, garment exporters and migrant workers. The role of government has remained underappreciated. Some have said that all this development has happened despite the government. This is unfair. 

Successive governments have taken policy actions, including public investment projects, that created the space for the entrepreneurial talents of Bangladeshis to be unleashed.

I shall tell a bit of that story. My research so far has covered seven important policy episodes spanning different sectors and time periods.

The explanation for Bangladesh's economic transformation should not be sought in some miracle or a paradox. Rather the answer lies in a set of powerful synergies and a series of tipping points. I shall talk about two types of synergies: the one among economic variables; and the other between policy actions and market responses by economic actors. 

By a tipping point, I refer to a time in the long-run trend of an economic variable where there is a significant change in the trajectory of the variable reflected in a quantum jump in the absolute value of the variable and sometimes also in its growth rate. In other words, the tipping points herald phases of what I call great accelerations in the variables. 

Bangladesh has witnessed several such tipping points and great accelerations since independence. Some examples of great accelerations are given in the table. These great accelerations are not all related to each other, but many are. 

In other words, there have been powerful synergies among economic variables. It is the repeated playing out of such synergies that explain a large part of the remarkable economic growth of Bangladesh.

Great accelerations in economic variables

Examples of such synergies include that between irrigation expansion, rural road network expansion and remittances in the 1980s and 1990s that led to a significant jump in the trajectory of crop production and rural non-farm activities from the late 1990s. Another, more recent, example of synergy is that between expansion of mobile phone network, internet subscriptions and mobile financial service expansion, which is leading to significant growth of e-commerce services. 

These synergies between economic variables unleashed a process of cumulative development and, with the passage of time, these synergies became more varied and powerful, thus leading to an acceleration of growth rates and generating the promise of even higher growth rates in the future.

The second type of synergies is between policy actions and market responses by economic actors. Developments in the economy, which result from the cumulative actions of innumerable economic actors such as consumers, producers and traders, trigger policy actions in various ways. Positive developments signal the beginning of a potentially transformative long-run trend. 

Infograph: TBS

Here, policy actions are taken to help realise that potential, i.e. to convert the nascent developments into transformative change. Sometimes, the trends are negative, such as a slowing down of production. Here, policy actions are taken to reverse the trend. 

Sometimes, policy actions triggered by a positive trend in an economy may be slow in coming, leading to a slowing down or reversal of the positive trends. This may put pressure to accelerate the policy reforms. 

An acceleration in an economic variable, in turn, generates new dynamics. A policy initiative that creates possibilities in the economy may also reveal certain constraints, which in turn, generates demand for additional policy interventions to remove such constraints. The full benefits of the initial round of policy interventions may thus be realised only if such follow-up policy initiatives are taken.

For example, an expansion in rural road networks can make villages better connected to the rest of the country, thus expanding markets for agricultural products. However, farmers may be constrained from exploiting the increase in demand because, even with a road connection, they might lack access to inputs or are unable to take their produce to distant markets if logistical services are inadequate. In such cases, the full impact of expanded connectivity is not realised till the constraints are relaxed. 

Such scenarios (policy actions generating economic dynamics which led to further policy actions) were repeated several times during the past 50 years. This is an important part of the explanation of the remarkable growth performance of Bangladesh.

The explanation for Bangladesh's remarkable growth performance should thus not be sought in some miracle or paradox but in a powerful set of synergies, among economic variables, and between policy actions and market responses. 

Successive governments in Bangladesh have adopted an incremental "testing the market" approach to policy making that has paid rich dividends.

This is an abridged version of Syed Akhtar Mahmood's presentation titled  Synergies and Tipping Points: Policy Actions, Market Responses and Economic Growth in Bangladesh at the ongoing CPD-Cornell Conference.