Why Bangladesh must embrace economic complexity

According to the Observatory of Economic Complexity, in 2023, Bangladesh ranked 113th out of 132 countries in the Economic Complexity Index (ECI), with a score of -1.03. 

The ECI is a powerful analytical tool that measures a country's productive capabilities based on the diversity and sophistication of its export structure. A positive ECI score indicates that a nation produces complex, less ubiquitous goods — products usually associated with higher growth potential. Bangladesh's negative score, by contrast, signals a troubling structural limitation.

While Bangladesh has broadened its export base in recent years, its overall economic complexity has stagnated. This stagnation largely stems from a shift toward a wider range of low-complexity products. The country's relatively low economic complexity, especially when compared to its income level, has resulted in a projected annual growth rate of just 3.1% over the coming decades — placing it in the global mid-tier for growth prospects.

Bangladesh's success in garment exports is commendable, but no nation achieves lasting prosperity by exporting T-shirts alone. The country's future hinges on its ability to broaden its economic base, develop new strengths, and compete within a more complex and demanding global landscape.

As a low-income nation striving for accelerated economic progress, we must confront a fundamental question: Why have we remained confined within a narrow and underdeveloped export structure? And more importantly, how can we break free from this trap?

Bangladesh's low ECI underscores its over-specialisation in a narrow range of products, limiting economic diversification. This situation reflects the dominance of labour-intensive exports with low value addition and limited scope for technological learning. 

The ready-made garments (RMG) sector, while undoubtedly a major contributor to growth, exemplifies this pattern. RMG exports surged from $1 billion in the early 1990s to $47 billion in 2023, while non-RMG exports grew modestly from $1 billion to just $8 billion over the same period.

This overconcentration is stark: Bangladesh's export concentration is four times higher than that of the average developing country. Among the country's top 100 export items, RMG products overwhelmingly dominate. 

Approximately 79% of total exports are concentrated in just five basic garment types — trousers, T-shirts, sweaters, shirts, and jackets. In contrast, Vietnam, one of Bangladesh's closest competitors, maintains a much more diversified export portfolio. Roughly 63.1% of its garment exports to the US comprise both man-made fibre (MMF) and cotton-based items, such as women's knit shirts, blouses, dresses, trousers, and coats.

Over recent decades, Bangladesh has undergone a perceptible structural transition — from agriculture to industry and, more recently, to services. The agricultural share of output fell from over 50% to less than 15%, while the contribution of the manufacturing sector — largely driven by RMG — rose from 9% to 21%. 

Meanwhile, the service sector's share expanded from around 35% to over 50%. These changes have undoubtedly contributed to the country's economic transformation. However, they do not necessarily reflect deeper structural change—the kind that fosters higher complexity, technological upgrading, and innovation-led production.

Sadly, much of the economy remains dominated by 'refuge sectors'—low-productivity segments such as small-scale family agriculture and informal services. These sectors serve as fallback options when more productive alternatives are unavailable. They offer little scope for learning, innovation, or economies of scale.

As Bangladesh prepares to graduate from the Least Developed Countries (LDCs) category, the stakes are rising. Structural inertia, reinforced by policy neglect, has made the economy ill-prepared to adapt to shifting global dynamics or absorb economic shocks. 

Over-reliance on low value-added exports, especially RMG, reflects the lack of a robust, diversified industrial ecosystem. Policy support has been disproportionately skewed towards a few sectors, with little effort to nurture enterprise-wide competitiveness.

To move forward, Bangladesh must commit to a decisive strategic shift. This involves investing in emerging sectors, adopting advanced technologies, and expanding the manufacturing base beyond its current limited scope. Industrial diversification must become a national priority.

But this cannot be achieved through piecemeal reforms. Bangladesh needs a coherent and future-oriented industrial policy — one that targets sectors and technologies with high learning potential and global demand. Ensuring macroeconomic stability and a supportive business climate is foundational. 

At the same time, targeted interventions such as export incentives, local content requirements, and integration into global value chains are necessary to accelerate the diversification process.

Equally critical is investment in human capital. Without a skilled workforce, efforts to embrace new technologies or stimulate innovation will falter. Attracting foreign direct investment (FDI) into high-tech sectors also requires parallel improvements in infrastructure and institutional capacity.

Agriculture, too, must not be sidelined. Rather than being treated as a remnant of the past, it must be modernised and linked to high-value processing, packaging, and export chains. With a significant portion of the population still engaged in agriculture, rural and industrial transformation must progress hand in hand.

Bangladesh's success in garment exports is commendable, but no nation achieves lasting prosperity by exporting T-shirts alone. The country's future hinges on its ability to broaden its economic base, develop new strengths, and compete within a more complex and demanding global landscape.

Ultimately, productive transformation is not merely a desirable policy goal—it is an economic necessity. Without it, growth will decelerate, vulnerabilities will deepen, and national aspirations will falter. The time has come to move beyond traditional sectors, beyond the comfort of simplicity, and embrace a more ambitious developmental path.

Real development is not just about scaling up existing sectors — it is about enhancing capabilities. Like the metamorphosis of a caterpillar into a butterfly, economic transformation requires deep, systemic change. Bangladesh must now rise to the challenge — not merely to grow, but to grow smarter and stronger.

Afsara Tasnim is a Research Associate at Research and Policy Integration for Development (RAPID).

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.