Neighborhood effects

Neighborhood linkage and demonstration effects have proven profoundly important for development in East and Southeast Asia. They have induced countries to become economically competitive, and they have allowed latecomers to draw on their momentum. The economic consequences of growth are reinforced when the electorate begins to see growth as intrinsic to the political agenda and essential for the credibility of the government.

Bangladesh's regional neighborhood has, until recently, been less-than-dynamic. Economic growth in India was only been moderate through the 1980s. Myanmar's economy has stagnated for two decades. Bangladesh's immediate neighbor to the west, the Indian state of West Bengal, averaged an annual growth rate of 2 percent from the late 1970s through the early 1990s, and there has been relatively little industrial deepening. Development in West Bengal has not exerted an upward pull on Bangladesh's economy. Rather, intense competition from Indian enterprises producing textiles, housewares, and food products have, if anything, restrained industrialization in Bangladesh. Not having moved to a higher stage of development, West Bengal has not created space in the lower reaches of the market for manufactures that Bangladeshi firms can compete for. The political rhetoric on both sides of the border has stressed equality over growth and given primacy to workers rights. Rather than inducing a widespread commitment to maximizing economic performance, as measured by growth and exports, regional politics has leaned towards "satisfactory'' growth and an avoidance of worsening inequality. In urban areas this political mood has permitted labor unions to flourish and has imparted a combative edge to relations between workers and their employers. The incidence of strikes is unusually high.

The quickening tempo of the Indian economy, which is spreading to West 32 Bengal, could have favorable consequences for Bangladesh. This quickening may or may not influence local politics. A deliberate effort to "look East" and view Southeast Asia as a second significant neighborhood might be more profitable over the medium term. To bring about such a shift the Bangladeshi urban business community must take the lead by actively seeking markets in Southeast Asia and attempting to attract investment from Malaysia, Taiwan (China), and Singapore. Closer economic links could strengthen the external forces exerting a pull on Bangladesh and could shift political concerns toward the kind of economic goals that have motivated development in East Asia.