Economic Growth Essay

3680 words - 15 pages

Journal of Business, Economics & Finance (2012), Vol.1 (2)

Manni and Ibne Afzal, 2012

EFFECT OF TRADE LIBERALIZATION ON ECONOMIC GROWTH OF DEVELOPING COUNTRIES: A CASE OF BANGLADESH ECONOMY Umme Humayara Manni1, Munshi Naser Ibne Afzal1
1

Universiti Brunei Darussalam, Faculty of Business, Economics and Policy Studies, Brunei.
ABSTRACT The objective of this paper is to assess the impact of trade liberalization on Bangladesh economy between the periods 1980 to 2010. This research analyzes the achievements of the economy in terms of important variables such as growth, inflation, export and import after trade liberalization. The paper uses simple Ordinary Least Square (OLS) technique ...view middle of the document...

Openness can have a positive effect on economic growth, exports, imports, FDI and remittance of a country. The history of Bangladesh’s economy starts in the 1960s, where the then East Pakistan’s economy grew by an annual average rate of around 4 per cent. About a fifth of that economy was destroyed during the Liberation War of 1971, and severe dislocations caused at that time left Bangladesh on a slower economic growth trajectory for the following two decades. Then the economy accelerated sharply from 1990 due to mainly trade openness and restoration of democracy (Islam, 2001). In the last two decades Bangladesh economy was characterized by successful expansion of export-oriented garment industry, and the implementation of a ‘Green Revolution’ (A significant increase in agricultural productivity resulting from the introduction of High-yield varieties of grains, the use of pesticides) in rice production. They enabled Bangladesh to survive the decline of the world market for its former stable exports of jute and jute textiles, and to redeploy its resources in line with its comparative advantage. This study uses OLS technique to find out the impact of trade openness on export, import, inflation and overall economic growth during the period of 1980 to 2010. This study breaks down the objective of finding out the impact of trade liberalization on economic growth of

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Journal of Business, Economics & Finance (2012), Vol.1 (2)

Manni and Ibne Afzal, 2012

Bangladesh into four main sections. Starting with introduction, literature review in section 1 where it highlights some work on trade liberalization and economic growth of developing countries, section 2 is the methodology, section 3 discuss the results and findings and subsequently section 4 draws the conclusion.

2. LITERATURE REVIEW OF TRADE LIBERALIZATION IN DEVELOPING COUNTRIES Most of the economic literature considers that trade liberalization leads to an increase in welfare derived from an improved allocation of domestic resources. Import restrictions of any kind create an anti-export bias by raising the price of importable goods relative to exportable goods. The removal of this bias through trade liberalization will encourage a shift of resources from the production of import substitutes to the production of export-oriented goods. This, in turn, will generate growth in the short to medium term as the country adjusts to a new allocation of resources more in keeping with its comparative advantage (McCulloch, Winters and Cirera, 2001). The most compelling argument for greater liberalization comes from the effects on economic efficiency, which promotes private investment and economic growth. Higher growth in turn helps lower poverty by increasing employment and real incomes of the poor. In an influential paper, Krugman (1990) summarized the reasons why trade liberalization is good for growth in developing countries. Firstly,...

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