Impact of Trade Liberalization of Bangladesh Essay

Introduction There exists a wide range of theory-based and semiempirical literature on the human relationship amongst abroad craft and scotchal growth in twain developed and developing countries. The early literature focused aboutly on the procedure of exporting in scotch growth. The spectacular success of the superficial oriented policies in the East Asian countries provided a basis for the espousal of such polices in developing countries like Bangladesh. Accordingly, the literature tried to alimentation or reject the logic of universal application of export light-emitting diode growth insurance in developing countries.The dynamic linkages between export and here and now or import and income did non receive much attention in this literature. But experience shows that in many countries export is passing cipherent on import of large(p) goods and intermediate inputs as considerably as raw materials giving a case of bivariate author between carry on (export-impo rt) and economic growth. The relationship between foreign art and economic growth has huge been discussed by different domesticate of thought.The theoretical standpoints can be summarized in terms of technological know how, commercialise expansion, resource storage allocation, ease of balance of payments, employment generation and income creation. (Hossain & Salim 2009). Karl Marx focuses on the component part of substitute in economic growth. In his opinion, the expansion of takings needs a growing market which will promote drudgery continuously (Chen 2009). The classical school treats the foreign trade as a means of optimal dissemination of resources and increasing productivity that stimulate economic growth.In similar vein is Alfred Marshall and his other neoclassical fol mooers and they dictum that trade enhances growth because of the benefits of comparative advantage, full capacity utilization, great economies of scale and increasing lay out of investment and te chnological change (Krueger, 1978 Kavoussi, 1984). This school identifies five different ways in which foreign trade affects macroeconomics transaction of a country the revenue effect, capital accumulation effect, substitution effect, income distribution effect and the effect of the weighted elements.All these effects together call for that trade strengthens economic growth over time as an rescue develops (Chen, 2009). The structuralist school lead by Sir William Arthur Lewis (1915-1991) holds that in the dual economy exemplar if the modern industrial sphere of influence produces export goods and the traditional agricultural sector produces import substitutes, then foreign trade would expand the market and make to increase in production. The impudently growth theories which consider increasing returns to capital put much focus on trade as an agate line of growth.According to these theories, international trade leads to technological diffusion that affects the medium and lo ng term output growth of the developing countries by improving productivity. The new trade school (led by Paul Krugman) emphasizes the role of trade in economic growth through economies of scale and improving the optimal allocation of resources. It is claimed that international trade enables countries to specialize in goods and services by excite competition and promoting technological change based on comparative and warlike advantage.As a result, consumers would be able to consume more products of better quality at cheaper prices and therefore human welfare would be increased (Gupta at al. , 1997, knowledge domain Bank, 2002). Economic growth is mainly depend on physical and human capital, technological progress, high rate of savings, macroeconomic stability, capital mobility, trade liberalization and so on. mickle plays important role on economic growth. There is a growing volume of empirical literature on the relationship between foreign trade and economic growth.In the 1970s and 1980s a number of studies see to itd the relationship between export and growth. Many such studies (see for good example, Balassa, 1978 Feder, 1983 Heller & Porter, 1978 Kavoussi, 1984 Michaely, 1977 Ram, 1985 Tyler, 1981) supported the thought that export growth promoted overall economic growth. Thus, there is a familiar question arises in mind What are the impacts trade liberalization (from shopping center to the outbound orientation) on economic growth?What are the dynamics and power among export, imports and income? Bangladesh is striving hard to boost up its exports in order to flirt the import payments, foreign debts, internal expenditure, maximize domestic welfare and to a fault to reduce the countrys dependence on foreign encourage grants. Therefore, since independence Bangladesh has experienced different policy regimes to enhance its foreign commutation earnings and rapid economic growth.Bangladesh has pursue a proactive policy of trade liberalization, ch aracterized by removal of Quantitative Restrictions (QR), rationalization of tariff rates, a flexible exchange rate policy and active inducement organise for promoting the export sector and enhancing export sector performance. The objective of this paper is to examine the trade policy (from Inwardness to Openness), structural changes and performance of foreign trade and also examine the causality among export, imports and growth in Bangladesh.After analyzing these issues, any(prenominal) policy suggestions have been put forward to boost up the foreign trade sector so as to enhance foreign exchange earnings. 2. An Overview of Foreign Trade Polices of Bangladesh From Inwardness to Openness/Trade Liberalization In the current era of globalization, trade liberalization emerges as one of the most effective policy concerns for governments all over the world, especially for developing countries. Trade liberalization is believed to enhance economic growth and development through peculia rity and technological advances.In the post-war period, in line with the mainstream thinking, many developing countries adopt in inward-looking system of development. This strategy, particularly when it went beyond the easy first stage, led to distorted incentive and misallocation of resources. It favored import-substitution (advocates transposition imports with domestic production) at the salute of export. It also involved undue governmental intervention in the workings of the market.Because of the widespread government failure to ensure adequate growth, and because of the successful example of export-led growth in South-East Asia, pendulum began to shift to trade liberalization and greater openness since the late 1970s and early 1980s. According to the World emergence Report 1987, an outward-oriented strategy is defined as one in which the incentive structure is neutral between import-substitution and export production. Thus, an export-led growth strategy does not require a favored treatment for exports in the form of subsidies or other incentives only a eutral policy regime which does not branch between domestic and export production. In a nutshell, the main requirements of this strategy would be moderate tariffs (preferable a uniform rate of tariff), dismantling of valued restrictions such as import licensing or quotas, a market-oriented exchange rate regime (as overvalued exchange rate would discriminate against exports and favor imports) and market-friendly laws and rules rather than discretionary controls.After independence in 1971, Bangladesh like her neighbors in South Asia pursued an inward-looking import-substitution strategy of growth. This was mainly characterized by the nationalization of all heavy industries and pecuniary institutions. Import substitution policy (a trade and economic policy that advocates replacing imports with domestic production.It is based on the premise that a country should plan of attack to reduce its foreign de pendency through the local production of industrialized products) was the basic premise of such state intruded and controlled development strategy where the role of the private sector was shriveled. The result of such a strategy was so painful that Bangladesh faced balance of payments (BOP) disequilibrium, foreign exchange shortage, and relatively low growth rate of national income and micro inefficiencies like inefficient import competing enterprises producing low quality products.Furthermore, the debt crisis in the early 1980 provided an important argument for trade reform. Consequently, since 1982 on being advised by the developed countries, along with the everyday Agreement on Tariffs and Trade (GATT), International Monetary Fund (IMF) and World Bank (WB), Bangladesh has started to shift its trade strategy to a strong outward looking one as part of market oriented economic reforms (structural adjustment packages) particularly after the year of 1985.