Economic growth is a cherished goal for a state, developed or developing, across the globe. In the recent past, Bangladesh has been one of the fastest growing economies in the world. Since the political and economic reform of 1990s, it has been experiencing an exponential growth. Bangladesh is poised to graduate from a least developed countries (LDCs) to a developing-country status and also has a vision to become a developed country by 2041. It is evident that Bangladesh has achieved remarkable progress in many socio-economic indicators such as life expectancy, infant mortality, and average year of schooling. Trade and remittance have contributed immensely in economic development of the country.
In spite of remarkable socio-economic development, Bangladesh is still unable to grow to its full potential. In the recent past the country has been witnessing the phenomenon of jobless growth. The growing number of unemployed, especially the youth unemployed, can undermine the economic achievement in the long run. Growing income inequality is another concern. Rich are getting even richer and poor people are not adequately benefited by economic development. There are also many externalities and impediments which are holding back the economic growth trajectory of the country.
The role of institutions in economic growth has recently been emphasised. Some critical institutions have to be in place in order for achieving sustainable economic growth. For example, the marginal positive effect of human capital on economic growth requires higher political stability and lower political risk that encourage human capital accumulation. Recent empirical researches confirm that human and social capital exerts direct positive influence on productivity which is an important prerequisite of sustainable development. It is also well documented in literature that interaction of growth and democracy plays an important role on human development in developing countries. Moreover, corruption, weak legal and economic institutions tend to favour the rich in getting access to finance, a key factor of development. In other words, crony capitalism is the ultimate result of weak institutions.
It is apparent that the institutions of Bangladesh are in a dire situation. The country is clearly lagging behind in most of the institutional indicators compared to other developing countries. For example, in the 2018 Heritage Foundation Index of Economic Freedom, Bangladesh's score roams around 50 in a scale of 100 and is very low compared to other developing nations. Millions of cases have piled up in the legal system.
There is no doubt that institutions are instrumental in attracting domestic and foreign investment. Local and international investors always feel more confident when there is rule of law, along with a strong legal and regulatory system. Well-regulated open market and security to private property can also stimulate small and medium enterprises to flourish.
Political stability is another important pre-requisite of economic development. Economy cannot grow to its potential during intense political instability when domestic and international investors are reluctant to invest. Unemployment is likely to go up when there is a lack of private investment for a prolong period of time. Political stability index developed by the World Bank indicates Bangladesh is at the bottom of the political stability rank compared to other emerging and developing economies of the world.
Corruption is another serious impediment to economic development in Bangladesh. The Corruption Perceptions Index, developed by Transparency International, depicts a miserable situation. Bangladesh has been persistently ranked as one of the most corrupt countries in the world. But in order to maintain sustainable economic growth, corruption must be curbed on a priority basis. Increasing private and public sector efficiency through transparent governance system can attract local and foreign direct investment.
Bangladesh has achieved many milestones since its independence in 1971. Financial and economic deregulations of nineties have stimulated international trade, finance and foreign direct investment. Foreign remittance, along with export earnings from the ready-made garment (RMG) sector, has become the ultimate engine of economic growth. At the same time, too much reliance on remittance and RMG poses a great threat to the economy. In this situation, export diversification is the order of the day.
However, it is a matter of grave concern that institutions in socio-economic, legal and political fields, are not yet placed on a strong footing in Bangladesh. These institutions are important pre-requisites of sustainable economic growth. If we fail to develop the institutions, Bangladesh may get derailed in its journey to become a developed economy by 2041.
Dr. Md Akther Uddin is Senior Lecturer and Programme Coordinator, School of Business, University of Creative Technology, Chittagong.
