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close this bookDeveloping the non-farm Sector in Bangladesh: Lessons from other Asian Countries (WB, 1996, 116 p.)
View the document(introduction...)
View the documentForeword
View the documentAbstract
View the documentAcknowledgements
View the documentSummary
View the documentImperatives and models
View the documentMacroeconomic trends in Bangladesh
Open this folder and view contentsWhat drives growth?
Open this folder and view contentsPattern of development
View the documentChoosing appropriate technologies
Open this folder and view contentsOther lessons from comparative experience
Open this folder and view contentsRural industry in Bangladesh
Open this folder and view contentsRural industry and export-led growth
View the documentGrowth poles
View the documentConcluding observations
View the documentTables and chards
View the documentBibliography

Imperatives and models

Bangladesh's choices can be neatly summed up by a handful of statistics. With a population of 120 million and a population density of 800 per square kilometer, it is the most crowded country in the world. Per capita income in 1994 was US$220, barely distancing Bangladesh from the small number of African countries at the very foot of the income scale. Half of all Bangladeshis live on the wrong side of the poverty line, most of them in the rural sector, where 75 percent of the population still resides, (World Bank 1995c, Ravallion 1994). Unemployment, open or disguised, plagues at least a third of the labor force. And this pool is swelling. About 2.5 million people enter the job market every year, and given the current rate of population increase, this growth will not taper off for at least two decades, even if fertility continues to decline. To prevent poverty and unemployment from becoming socially insupportable and politically explosive, Bangladesh has only one meaningful choice: it must aim for a growth rate of not much less than 7-8 percent, using the most labor intensive techniques while still being efficient.

Growth of this order is roughly twice the average annual rate attained during the 1980s and 80 percent higher than the average rate seen in the first half of the 1990s. It is a rate that very few countries have been able to sustain over a long stretch. Can Bangladesh replicate this performance? What minimum conditions must be met to raise and then hold growth at such levels? Can we learn what these conditions are by examining the experiences of both slow-and-fast growing countries? These questions are tackled in this paper.

We focus throughout on the nonfarm sector because of its importance for development and poverty alleviation in the rural as well as the pert-urban areas of Bangladesh, In several of the fastest growing economies of the nonfarm sector strongly reinforced good agricultural performance and in some instances, it served as a leading sector in its own right. The emergence and multiplication of construction, transport, manufacturing, and service-providing enterprises in rural areas are largely responsible for the rural economy's surge in several major East Asian countries. In China, Thailand, Taiwan (China), the Philippines, and Malaysia, rural and pert-urban firms contribute substantially to overall economic growth, have provided the lion's share of productive off farm employment for the rural workforce, and generate a large volume of exports. In China non-state enterprises, many of them launched on the initiative of local governments and with the support of foreign investors, have grown at double-digit rates and steadily enlarged the share of nonfarm output in agricultural GDP (Lanjouw and Lanjouw 1994). Between 1976 and 1990 employment in nonfarm activities grew from 5 percent of the total labor force to 20 percent (Wu 1992). By the end of 1994 the non-state sector, which is largely ruralbased, accounted for 60 percent of industrial product and more than a quarter of manufactured exports. The growth rates of rural industry since the mid- 1970s has contributed significantly to the economic transformation of coastal provinces 4 stretching from Shandong to Guangdong. Now, the penetration of these industries into the interior is raising the tempo of the rural economy in the inland provinces as well.

Oshima (1993) has divided the evolution of nonfarm employment into three stages. The first stage is dominated by traditional labor-intensive activities that use little modern equipment. Transport, construction, and trading are important at this stage, but many families are still engaged in handicrafts and artisanal work. In the second stage semimodern off-farm activities, arising as a result of agricultural diversification, co-exist with traditional activities and with the development of services. And in the third stage manufacturing grows faster than construction and services, and cottage industries decline rapidly. During this stage the proportion of income from off-farm activities rises to a third or more of family income (see Table 30).

In underscoring the importance of nonagricultural activity in the rural areas of Taiwan (China), Ranis notes, "In most developing countries 15-25 percent of the income of farm families comes from such sources. In Taiwan non-agricultural income for rural families rose from 30 percent to 80 percent of the total....It permitted especially the smaller and poorest farmers to be absorbed into efficient productive activities in rural areas. So agriculture and non-agriculture could reinforce each other...It was also good for income distribution. This was efficient labor intensive activity. Of the total output, labor income was about 60 percent going up to 80 percent in rural industries, while the international norm is 40-50 percent (1991:32-33)." Agro-based industry in Thailand and handicrafts and furniture manufacturers in the Philippines have emerged as important employers that have penetrated export markets in several of the OECD countries. The growth of rural industry constitutes one of the more hopeful economic developments in some of the African economies, such as Kenya, Zimbabwe, Botswana, and Uganda. Production of cut flowers, Asian vegetables, and handicrafts is expanding at a fast clip and supplementing earnings from traditional exports.

The thesis of this paper is that rapid growth in Bangladesh which has a large farming sector, is likely to be a function initially of agricultural productivity and prosperity. As Reardon and others (1994) observe about Africa, "it will be difficult to expand nonfarm income if agriculture is stagnant." A robust agricultural economy increases food security and can serve as a launching pad for rural industry and commerce, which will begin to grow near cities, but eventually spread to include a broad swathe of the rural economy. With the help of suitable policies, institution building, and investment, rural industry can become a powerful sector featuring substantial export potential. In fact, exports could be crucial for both growth and competitiveness. Take the example of Taiwan (China). Small metalworking shops that sprang up in the 1950s,eventually diversified to become producers as well as exporters of small consumer durables and electronic products (Park and Johnston 1995). Once this sector grows in Bangladesh, it can begin to generate higher rates of expansion, employment, and foreign exchange earnings in the rural economy. It can also stimulate through various linkages, the performance of the urban industrial sector.