Part-2: Economic Development

Chapter-5: Concepts & Approaches of Economics of

Development
a) What do you mean by development and economic development? Why study development
economics? Difference between economic development and economic growth? Can you give
hypothetical/real example of situation in which a country may be developing economically but may
still be underdeveloped?

Development generally refers to the process of growth, progression, or evolution. It can be

seen in various contexts such as the growth of an individual, a society, or a nation. It involves
changes and improvements over time, which can be qualitative or quantitative.

On the other hand, Economic Development is a specific aspect of development that focuses on
the economic transformation of a region or country. It refers to the process whereby simple,
low-income national economies are transformed into modern industrial economies. Economic
development involves improvements in a variety of indicators such as literacy rates, life
expectancy, and poverty rates.

Studying Development Economics is important for several reasons:

1. Understanding Economic Disparities: It helps us understand the vast disparities in

income and wealth among nations and regions, and the factors contributing to these
disparities.
2. Policy Formulation: It provides valuable insights for policy formulation aimed at
reducing poverty and promoting sustainable economic growth.
3. Promoting Social Justice: It contributes to efforts towards promoting social justice and
equitable distribution of resources.
4. Sustainable Development: It helps in understanding and addressing issues related to
sustainable development and environmental conservation.

The difference between economic development and economic growth in a table format:

Economic Development Economic Growth

Definition Economic development is a broader Economic growth is a narrower concept than

concept that reflects social and economic economic development. It is an increase in a
progress and requires economic growth. It country’s production or income per capita, with
is focused on the improvement of the economy’s total output of goods and services
economic wealth of a country or region for increasing over time. It’s a quantitative measure
the well-being of its inhabitants. that shows how much more a country produces
 Economic Development Economic Growth

over a certain period.

Economic development takes into account

Economic growth is typically measured in terms of
factors such as literacy rates, life
Indicators an increase in Gross Domestic Product (GDP) or
expectancy, poverty rates, unemployment,
Gross National Product (GNP).
and infrastructure.

The focus of economic growth is on quantitative

The focus of economic development is on
Focus measures and numerical increase in the country’s
people and their standard of living.
GDP.

Economic development leads to the Economic growth leads to higher output and
Outcome
economic welfare of the society. economic expansion.

Brazil exhibits elements of economical development, seen in its large economy and industrial sectors.
However, persistent challenges include high income inequality, inadequate infrastructure and social
services, political instability, environmental concerns and regional disparities. Despite economic growth,
these factors contribute to Brazil's classification as both economically developing and underdeveloped.

b) Discuss the Amartya Sen’s “Capability” Approach.

Amartya Sen’s Capability Approach.

The Capability Approach is a theoretical and normative framework that focuses on the
moral significance of individuals’ capability of achieving the kind of lives they have reason to
value1. This approach distinguishes itself from more established approaches to ethical
evaluation, such as utilitarianism or resourcism, which focus exclusively on subjective well-
being or the availability of means to the good life, respectively1.

A person’s capability to live a good life is defined in terms of the set of valuable ‘beings and
doings’ like being in good health or having loving relationships with others to which they
have real access1. The Capability Approach was first articulated by the Indian economist and
philosopher Amartya Sen in the 1980s, and remains most closely associated with him 1.

It has been employed extensively in the context of human development, for example, by
the United Nations Development Programme, as a broader, deeper alternative to narrowly
economic metrics such as growth in GDP per capita1. Here ‘poverty’ is understood as
deprivation in the capability to live a good life, and ‘development’ is understood as
capability expansion1.

The Capability Approach is seen to be relevant for the moral evaluation of social
arrangements beyond the development context, for example, for considering gender
 justice1. It is also seen as providing foundations for normative theorising, such as a
capability theory of justice that would include an explicit ‘metric’ (that specifies which
capabilities are valuable) and ‘rule’ (that specifies how the capabilities are to be
distributed)1.

The philosopher Martha Nussbaum has provided the most influential version of such a
capability theory of justice, deriving from the requirements of human dignity a list of central
capabilities to be incorporated into national constitutions and guaranteed to all up to a
certain threshold1.

In summary, the Capability Approach is a powerful tool for evaluating individual well-being
and social arrangements, highlighting the importance of improving individuals’ substantive
freedoms or real opportunities to achieve valuable states of being and doing 2.

c) How agriculture can contribute in Bangladesh? Mention the main objective of the national
agriculture policy. Highlight some problems in our agriculture? Explain from your point of view how
can they be solved?

Contribution of Agriculture in Bangladesh Agriculture plays a significant role in the economy of

Bangladesh. It contributes around 12.6% to the GDP and provides employment to about 41% of
the labor force1234. The sector is vital for ensuring food security, reducing poverty, and
supporting livelihoods1. Despite the reduction in its contribution to GDP over the years, the
significance of farming, including its sub-sectors, service, and industry sectors, has increased
manifold1.

Main Objective of the National Agriculture Policy The main objective of the National
Agriculture Policy is to ensure food security and improve the socioeconomic conditions of
people by increasing productivity and production of crops, enhancing farmers’ income,
promoting crop diversification, ensuring nutritious and safe food production, improving the
marketing system, and ensuring profitable agriculture and efficient utilization of natural
resources567.

Problems in Agriculture in Bangladesh

1. Climate Change: Bangladesh’s agricultural sector has been severely affected by climate
change, with flooding and salinity intrusion posing significant challenges 8.
2. High Cost of Inputs: The usage of inputs in Bangladeshi agriculture is high compared to
the standard amount9.
3. Absence of Appropriate Institutions: There is a lack of institutions that can support the
agricultural sector10.
4. Inefficient Investment and Use of Funds: The sector suffers from inefficient investment
and use of funds9.
 5. Limitations of Land: With a rapidly growing population and decreasing land size, land
availability is a major issue9.
6. Lack of Proper Infrastructure: The agricultural sector is facing several challenges,
including a lack of proper infrastructure, limited market access, and limited information
management capabilities11.

Solutions to the Problems

1. Adopt Climate-Smart Agriculture: Climate-smart agriculture (CSA) can help to

sustainably increase productivity, enhance resilience, and reduce greenhouse gases 12.
2. Improve Input Management: Research and extension activities can help farmers use
inputs more efficiently9.
3. Strengthen Institutions: Strengthening agricultural institutions can provide better
support to farmers10.
4. Increase Investment: Increasing investment in agricultural research, human capital, and
roads have driven growth13.
5. Implement Land Reforms: Implementing land reforms can help in the efficient use of
land9.
6. Improve Infrastructure: Improving infrastructure can increase the efficiency of the
sector and limit its competitiveness, hindering economic growth11.

These are just a few examples of how the challenges in Bangladesh’s agriculture sector can be
addressed. It’s important to note that these solutions require a holistic approach and the
involvement of various stakeholders, including the government, private sector, and the farmers
themselves.

d) Describe the role of industry for the development of Bangladesh? Why we are lagging behind
industrial development? What steps can be taken for the development of the situation?

Role of Industry in the Development of Bangladesh The industrial sector plays a crucial role in
the economic development of Bangladesh. It contributes to GDP, provides employment, and
aids in poverty reduction1. The ready-made garment (RMG) industry has been particularly
significant, transforming the economy from agriculture-based to industry-oriented 2. Significant
investments in infrastructure have helped connect the formerly fragmented economy 2.
However, the structure and composition of the manufacturing sector are overwhelmingly
dominated by the RMGs and textiles industries3.

Reasons for Lagging Behind in Industrial Development Several factors contribute to the lag in
industrial development in Bangladesh:

1. Lack of Adequate Capital: Insufficient capital hinders the growth and expansion of
industries4.
 2. Inadequate Infrastructure: Poor infrastructure can limit industrial growth4.
3. Adverse Tax System: An unfavorable tax system can discourage industrial
development4.
4. Lack of Technological Knowledge: Limited access to modern technology can hinder
productivity and competitiveness5.
5. Political Instability: Political instability can create an uncertain business environment,
discouraging investment6.
6. Improper Law and Order Situation: A weak legal system can deter investors and hinder
business operations4.

Steps for Industrial Development To foster industrial development, several steps can be taken:

1. Partnerships with Industry: Collaborations with industry can help align education and
training with industry needs7.
2. Access to Modern Teaching-Learning Facilities: This can help build a skilled workforce7.
3. Teachers’ Professional Development: Enhancing teachers’ skills can improve the quality
of education7.
4. Job-Market Specific Curriculum Including Soft Skills Development : This can ensure that
graduates have the skills needed by employers7.
5. Institutional Capacity Building and Partnerships with Private Sector : This can help
institutions better serve the needs of students and employers7.
6. Strengthening Domestic Resource Mobilization: This can provide the funds needed for
development8.

These steps, along with a stable political environment and favorable policies, can help
Bangladesh achieve its vision of becoming an upper middle-income country by 2031 1.

e) Describe the features of transport system of Bangladesh? To improve the transport &
communication system what steps can be taken?

Features of the Transport System in Bangladesh The transport system in Bangladesh is diverse,
encompassing several different modes of transportation123:

1. Roads: Roads are the primary mode of transport, with Dhaka experiencing severe traffic
congestion1.
2. Railways: The rail network is 2,460 kilometers long, ranking 68th in the world in terms
of length4.
3. Inland Waterways: Given the country’s extensive river network, waterways play a
significant role in transportation1.
4. Air Travel: There are three international airports and several domestic airports3.
5. Cycle Rickshaws: Cycle rickshaws and man-pulled rickshaws are common modes of
transportation1.
However, the transport system faces several challenges, such as a lack of integration between
modes, over-reliance on roads, and weak institutions2.

Steps to Improve the Transport & Communication System Several steps can be taken to
improve the transport and communication system in Bangladesh567:

1. Promote Social Understanding: Conduct transport campaigns and expand transport

education to raise awareness about urban transport problems5.
2. Manage Urban Growth Effectively: Coordinate policies within the metropolitan area
and integrate urban development and transport planning5.
3. Develop Attractive Public Transport: Develop a hierarchical public transport system and
introduce an integrated public transport system to maintain public transport share 56.
4. Improve Infrastructure: Construct new railway lines, convert existing lines to dual
gauge, construct new rail bridges, and introduce new trains7.
5. Prioritize Accessibility, Social Equity, and Ecological Sustainability : Develop a more
sustainable and people-centered transport system2.

These steps, along with continued investment and policy support, can significantly improve the
transport and communication system in Bangladesh.

Chapter-6: Development Theories & Growth Models

a) Discuss the classical theory of economic development. What is Stationary State? What are the
criticism of this theory?

Classical Theory of Economic Development The classical theory of economic development,

primarily developed by economists like Adam Smith, Thomas Malthus, and David Ricardo,
focuses on the broad forces that influence economic growth and the mechanisms underlying
the growth process12. The theory emerged during the industrial revolution and was based on
the conditions of industrial capitalism in Britain1.

The classical economists believed that the accumulation and productive investment of a part of
the social surplus in the form of profits were the main driving forces of economic growth 1. They
argued that changes in the rate of profit were a decisive reference point for the analysis of the
long-term evolution of the economy1. Ricardo, in particular, indicated that in a closed economy,
there is an inevitable tendency for the rate of profit to fall1.

Stationary State A stationary state, as defined by classical economists, is a state of the

economy where growth is neither positive nor negative3. In other words, it’s a condition where
the economy is not growing or shrinking. This concept was first introduced by John Stuart Mill3.
Until then, a stationary state, like a declining state, was considered unwelcome, and growth
was thought to benefit all classes of society: capitalists, landlords, and workers3.

Criticisms of the Classical Theory The classical theory of economic development has been
criticized for several reasons:

1. Over-Simplification: One of the primary criticisms is its tendency to over-simplify

complex economic processes. For instance, the classical theory assumes that markets
function smoothly and achieve equilibrium on their own, without any outside
intervention4.
2. Lack of Cohesion: Classical economists were not completely unified in their theories,
ideas, and assertions, including their beliefs or understanding of markets 5.
3. Limited Scope: The classical theory primarily focuses on the supply side of the economy
and often neglects the demand side6.
4. Inadequate Consideration of Technological Change: The classical theory does not
adequately consider the role of technological change in economic development 6.

These criticisms have led to the development of new economic theories that attempt to
address these limitations and provide a more comprehensive understanding of economic
development.

b) Describe the key points of Schumpeter’s theory. Mention the criticisms of this theory.

Key Points of Schumpeter’s Theory Joseph Schumpeter’s theory of economic development

emphasizes the role of the entrepreneur and innovation in the process of economic
development12. Here are the key points:

1. Role of the Entrepreneur: Schumpeter assigns a paramount role to the entrepreneur in

the process of economic development1. The entrepreneur introduces innovations that
disrupt the equilibrium of the economy and lead to economic development 1.
2. Innovation: Schumpeter emphasized the crucial role of innovation in promoting
economic growth3. Innovations could include the introduction of a new product, a new
method of production, the opening up of a new market, the conquest of a new source
of supply of raw materials or semi-manufactured goods, or the carrying out of a new
organization of any industry2.
3. Circular Flow and Development: Schumpeter distinguished two components in the
dynamic evolution of the economy - the “growth component” which brings about
gradual, continuous, and slow evolution due to changes in factor availability, and the
“development component” which brings about spontaneous and discontinuous change
in the channels of output flow due to changes in the technical and social environments 1.
 4. Capitalism and Socialism: Schumpeter hypothesized that the economic system would
eventually create a large intellectual class that survived by attacking the system of
private property and freedom that was necessary for sustaining its own existence 4.

Criticisms of Schumpeter’s Theory Despite its significant contributions, Schumpeter’s theory

has been subject to several criticisms5:

1. Overemphasis on the Role of the Innovator: Critics argue that Schumpeter

overemphasized the role of the innovator, as innovations are only one of many factors
causing cyclical fluctuations in a capitalistic economy5.
2. Ignoring the Role of Savings: Schumpeter assumed that innovations are financed by
bank credit, ignoring the important sources of real savings such as deficit financing,
budgetary savings, public borrowings, and other fiscal measures5.
3. Unconvincing Analysis of Capitalist Process: Critics argue that Schumpeter’s analysis of
the capitalist process is not completely convincing, as the success of capitalism does not
depend only on the personality and behavior of the innovator but on non-economic
factors too5.
4. Unclear Emergence of Socialism: Schumpeter’s analysis about the emergence of
socialism is provocative yet it seems to be one-sided and overemphasized5. His
unawareness about this factor is clear from his words, “We know nothing as yet about
the precise way by which socialism may be expected to come, except that there must be
a great many possibilities ranging from gradual bureaucratization to the most
picturesque revolution.”5.

c) What are the stages of the Rostow Five Stages Theory of Economic Development? Mention the
criticisms of this theory. Write the importance of the theory.

Stages of the Rostow Five Stages Theory of Economic Development The Rostow’s Five Stages
Theory of Economic Development, proposed by economist Walt Whitman Rostow, suggests
that a country’s economic growth occurs in five basic stages1234:

1. Traditional Society: This stage is characterized by a subsistence, agricultural-based

economy with intensive labor and low levels of trading, and a population that does not
have a scientific perspective on the world and technology1.
2. Preconditions to Take-off: Here, a society begins to develop manufacturing and a more
national/international—as opposed to regional—outlook1.
3. Take-off: Rostow describes this stage as a short period of intensive growth, in which
industrialization begins to occur, and workers and institutions become concentrated
around a new industry1.
4. Drive to Maturity: This stage takes place over a long period of time, as standards of
living rise, the use of technology increases, and the national economy grows and
diversifies1.
 5. Age of High Mass Consumption: At the time of writing, Rostow believed that Western
countries, most notably the United States, occupied this last “developed” stage. Here, a
country’s economy flourishes in a capitalist system, characterized by mass production
and consumerism1.

Criticisms of the Rostow’s Five Stages Theory Despite its influence, Rostow’s theory has been
subject to several criticisms51:

1. Overemphasis on Western Model: Critics argue that Rostow’s theory is biased towards
a Western model as the only path towards development1.
2. Linear Progression: Critics have cited that all countries do not develop in such a linear
fashion; some skip steps or take different paths1.
3. Traditional Society not Essential for Development: A number of nations such as the
United States, Canada, New Zealand, and Australia were born free from traditional
societies and they derived the pre-conditions from Britain, a country already advanced 5.
4. Overlapping of Different Stages: The stages of economic growth mentioned by Rostow
are not mutually exclusive and they may overlap each other5.

Importance of the Rostow’s Five Stages Theory Rostow’s model offers a linear framework for
understanding economic development and growth6. It provides insight into how economies
evolve and identifies potential barriers and accelerators to growth at different stages 6. The
theory has been influential in shaping economic policies and development strategies in many
countries1. However, it’s important to note that while the model provides a useful framework,
it may not fully capture the complexities and unique circumstances of each country’s
development process1.

d) Discuss the key features of the Big-push Theory of economic development. Mention the criticisms and
limitations of this theory.

Key Features of the Big-Push Theory The Big-Push Theory, first put forward by P.N. Rosenstein-
Rodan, is a variant of the theory of balanced growth1. Here are the key features:

1. Massive Investment: The theory envisages massive investment at the very outset of the
process of growth2.
2. Investment in Different Sectors: The theory envisages the need for investment across
different channels of growth so that each channel sustains the growth of others by
providing the necessary demand-base2.
3. Planned Industrialization: The theory stresses the need for planned industrialization of
underdeveloped countries where agriculture is the dominant sector2.
4. External Economies: The basic rationale of the Big Push, like the Balanced Growth
theory, is based upon the idea of external economies1.
Criticisms and Limitations of the Big-Push Theory Despite its contributions, the Big-Push
Theory has been criticized on several grounds3:

1. Inadequacy of Resources: The theory fails to recognize that the amount of resources in
an underdeveloped country is very limited3.
2. Danger of Inflation: The increased investments call for an increase in money supply and
yet this could be inflationary3.
3. Problem of Coordination: It is very difficult to coordinate the various development plans
in the Big Push theory3.
4. Assumption of Homogenous Society: One of the main critiques of the Big Push theory is
that it assumes a homogenous society where everyone is working towards the same
goal4.

Despite these criticisms, the Big-Push Theory has been influential in understanding the process
of economic development and has guided policy-making in many developing countries 1.

e) Explain the Lewis Theory of economic development.

The Lewis Theory of Economic Development, also known as the Dual Sector Model, was
proposed by Sir W. Arthur Lewis. This theory explains the growth of a developing economy in
terms of a labor transition between two sectors12. Here are the key features:

1. Dual Sectors: The model consists of a traditional agricultural sector and a modern
industrial sector1.
2. Surplus Labor: In the traditional agricultural sector, there is a surplus of labor, meaning
that the marginal product of labor is zero. If a few workers are removed from this
sector, the total product remains unchanged3.
3. Transition of Labor: The essence of the development process in such an economy is the
transfer of labor resources from the agricultural sector, where they add nothing to
production, to the more modern industrial sector, where they create a surplus that may
be used for further growth and development3.
4. Role of Industrial Sector: The industrial sector, or the “capitalist sector,” employs a
growing share of the excess labor available from the subsistence sector. Over time, this
capitalist sector can come to eclipse the subsistence sector, causing the overall economy
to grow2.

This model has been influential in understanding the process of economic development and has
guided policy-making in many developing countries4.
f) Explain the Solow Model of economic development. What are the assumptions & applicability of this
model.

Solow Model of Economic Development The Solow Model, also known as the Solow-Swan
Neoclassical Growth Model, is an economic model of long-run economic growth. It was
developed by Nobel Prize-winning economist Robert Solow and is built upon the Keynesian
Harrod-Domar model123. The model attempts to explain long-run economic growth by looking at
capital accumulation, labor or population growth, and increases in productivity largely driven by
technological progress123.

Assumptions of the Solow Model The Solow Model is based on several fundamental
assumptions14567:

1. Constant Returns to Scale: Total output doubles if all inputs—capital, and labor—are
doubled15.
2. Depreciation of Capital: Capital stock depreciates over time15.
3. Exogenous Technological Progress: Technological progress is external and does not
depend on economic factors15.
4. Closed Economy with No Government: The model assumes no international trade or
government impact5.
5. Full Employment of Capital and Labor: All factors of production are fully employed6.
6. Constant Rate of Reproduction and Constant Saving Ratio : The model assumes a
constant rate of reproduction and a constant saving ratio7.

Applicability of the Solow Model The Solow Model is a powerful tool for understanding the
relationship between economic growth and capital accumulation8. It replicates the patterns
seen in real-world data, such as sustained growth over time and a positive correlation between
the rate of investment and output per worker across countries9. The model’s elegance and
simplicity have made it a fundamental tool in economics, offering insights into the
determinants of long-term growth and the convergence of income levels across economies 10. It
has been used to explain the faster economic growth of developing nations and has successfully
predicted the fast economic growth of China as compared to western nations and the speedier
economic recovery of war-hit Japan and Germany11.

g) Discuss the Golden Rule of accumulation. What is meant by capital accumulation?

Golden Rule of Accumulation The Golden Rule of Accumulation, also known as the Golden Rule
of Capital Accumulation, is a concept in economics that refers to the optimal level of
investment that maximizes steady-state level of consumption12. This rule was first coined by
Edmund Phelps12.
According to this rule, an economy reaches the optimum growth rate at the point where each
generation saves and invests at the level that it wishes the previous generation would have
invested12. The steady-state value of capital per worker, which maximizes consumption per
worker, is called the Golden Rule Level of Capital1.

The Golden Rule of Accumulation is based on the idea that consumption is a measure of
welfare, not saving or accumulation of capital1. Saving is not an end in itself, but a means to an
end1. Therefore, the aim of economic policy should be the maximization of social welfare, and
policymakers should choose the steady state with the highest level of consumption 1.

Capital Accumulation Capital accumulation refers to an increase in assets from investments or

profits34. The goal of capital accumulation is to increase the value of an initial investment as a
return on investment, whether that be through appreciation, rent, capital gains, or interest 34.
Capital accumulation is one of the building blocks of a capitalist economy 34.

Capital accumulation primarily focuses on the growth of existing wealth through the investment
of earned profits and savings34. This investment is focused in a variety of ways throughout the
economy. One method of growing capital is through the purchase of tangible goods that drive
production. This can include physical assets such as machinery34. Investment in financial assets,
such as stocks and bonds, is another means of capital accumulation if the value of those assets
increases34.

h) What does the Harold-domar model? Difference between Harrold and Domar model?

Harrod-Domar Model The Harrod-Domar model is a Keynesian model of economic growth. It is

used in development economics to explain an economy’s growth rate in terms of the level of
saving and of capital12. The model suggests that there is no natural reason for an economy to
have balanced growth2. The model was developed independently by Roy F. Harrod in 1939, and
Evsey Domar in 19462.

The Harrod-Domar model suggests that the rate of economic growth depends on two things:
the level of savings and the capital-output ratio1. A higher level of savings enables higher
investment, leading to faster economic growth1. However, the model also takes into account
factors such as the depreciation of existing capital, the natural rate of growth, and the
efficiency of capital1.

Difference between Harrod and Domar Model While both models evolved similar conditions,
there are a few differences between them3:
 1. Use of Marginal Capital Output Ratio and Accelerator: Harrod uses the marginal capital
output ratio (MCOR) and the accelerator. But Domar uses the reciprocal of marginal
capital output ratio and the multiplier3.
2. Representation of Marginal Propensity to Save: The marginal propensity to save in
Domar model is represented by Greek letter Alpha (α) and in Harrod’s model, it is
represented by Sigma (σ), but both represent propensities to save expressed as ratios 3.
3. Direction of Investment Relation: Domar relates investment forward to the increase in
income but Harrod is concerned with the way the investment is traced back to the rate
of income3.
4. Number of Growth Rates: Harrod uses three distinct rates of growth i.e. actual rate (G),
warranted rate (Gw) and natural rate (Gn) while Domar uses one growth rate 3.
5. Assumption of Entrepreneur Behavior: Harrod assumes a certain behavior pattern for
entrepreneur which induces investment but in Domar’s model, no such behavior pattern
for entrepreneurs has been mentioned3.
6. Technique of Growth: Domar’s model is based on balanced technique of growth while
Harrod’s growth model moves from balanced technique to balanced technique 3.
7. Principle of Growth: Harrod’s model is based on the principle of acceleration, while
Domar’s model of growth is based on the principle of multiplier3.
8. Integration of Business Cycle: For Harrod, the business cycle is an integrated part of the
path of growth and for Domar, it is not so but is accommodated in his model by allowing
σ (average productivity of investment) to fluctuate3.
9. Acceleration Coefficients: Harrod and Domar have employed the same acceleration
coefficients with only different symbols. Harrod’s acceleration coefficient is called
psychological and that of Domar’s technological one3.

i) What is knife-edge problem, discuss? Limitations of these model from the Standpoint of
underdeveloped countries.

Knife-Edge Problem The knife-edge problem refers to the inherent instability in the Harrod-
Domar model of economic growth1. The model suggests that the economy is always on a “knife-
edge” equilibrium, where even a slight deviation from the equilibrium growth rate can lead to
either an inflationary boom or a deflationary recession1. This is because the model assumes that
the wage rate is fixed and that the economy must use labor and capital in the same
proportions2. Therefore, any slight variation in economic and non-economic factors can lead to
disequilibrium1.

Limitations of Harrod-Domar Model for Underdeveloped Countries The Harrod-Domar model,

while influential, has several limitations when applied to underdeveloped countries 345:

1. Difficulty in Increasing Savings: Many developing countries have low marginal

propensities to save. Extra income gained is often spent on increased consumption
rather than saved3.
 2. Inappropriate Assumptions: The model assumes a closed economy with no
government, full employment of capital and labor, and constant returns to scale. These
assumptions may not hold true in underdeveloped countries4.
3. Overemphasis on Capital Accumulation: The model places a heavy emphasis on capital
accumulation as the driver of economic growth. However, in many underdeveloped
countries, factors such as human capital development, institutional quality, and
technological progress may be more important5.
4. Lack of Consideration for Structural Changes: The model does not take into account the
structural changes that often occur in the process of economic development, such as
the shift from an agrarian to an industrial economy5.
5. Instability of Growth: The model suggests that growth is inherently unstable, which may
discourage investment and economic planning4.
6. Unrealistic Expectations: The model sets unrealistic expectations for underdeveloped
countries to increase their savings ratios, which may be inappropriate when people are
struggling to get enough food to eat3.
7. Inadequate Long-Term Growth Model: Harrod later repudiated his model because he
felt it did not provide a model for long-term growth rates3.

Chapter-7: Fundamental Issues and Strategies of Economic

Development of Bangladesh
a) What do you mean by poverty? What are the causes of poverty? Explain how to reduce the poverty
problem in Bangladesh.

Poverty is a state or condition in which individuals or communities lack the financial resources
and other essentials for a minimum standard of living123. This means they cannot meet their
basic human needs, which may include proper housing, clean water, healthy food, and medical
attention3. Poverty can also be defined as the state of being extremely poor, inferior in quality,
or insufficient in amount1.

The causes of poverty are diverse and complex, often resulting from a combination of
factors456. Here are some common causes:
 1. Inequality: When one group has fewer rights and resources based on an aspect of their identity
compared to others in a community, that’s inequality4.
2. Lack of good jobs/job growth: When people don’t have a good job, they aren’t getting a good
income5.
3. Lack of good education: Poverty is a cycle and without education, people aren’t able to better
their situations5.
4. Warfare/conflict: Conflict has a huge impact on poverty5.
5. Weather/climate change: Climate change has the power to impoverish many people5.
6. Social injustice: Whether it’s gender discrimination, racism, or other forms of social injustice,
poverty follows5.

To reduce poverty in Bangladesh, several strategies can be implemented78910:

1. Education: The government of Bangladesh established the Primary Education Stipends program
between 1990 and 2000. Impoverished families receive a cash stipend each month to send
children to school8.
2. Entrepreneurship: UKAid’s Urban Partnership for Poverty Reduction project was created to
assist aspiring entrepreneurs in poverty8.
3. Infrastructure and Business Climate Improvement: Improving infrastructure as well as the
business climate would allow new productive sectors to develop and generate jobs 7.
4. Structural Reforms: Expand bilateral and multilateral free trade agreements, strengthen
financial sector stability, improve domestic resource mobilization, address climate change
adaptation and mitigation, and improve the governance framework9.
5. Social Safety Nets: These include the provision of income security for the elderly, widows and
persons-with-disabilities, generating temporary employment for working age men and women,
and supporting the healthy development of young mothers and children 10.

It’s important to note that these strategies should be tailored to the specific needs and
circumstances of the communities they are intended to serve. Reducing poverty is a complex
task that requires a multifaceted approach. It’s not just about providing resources, but also
about creating opportunities and addressing systemic issues that contribute to poverty.

b) What is Balance of Payment? Describe the importance of Balance of Payment.

The Balance of Payments (BOP) is a record of all international financial transactions made by
the residents of a country1. It’s a method countries use to monitor all international monetary
transactions in a specific period, usually calculated every quarter and every calendar year 1. All
trades conducted by both the private and public sectors are accounted for in the BOP to
determine how much money is going in and out of a country1. The BOP is divided into three
main categories: the current account, the capital account, and the financial account 1.

The importance of the Balance of Payments is as follows:

 1. Monitor all International Transactions: The BOP monitors and records all international
transactions of a country with all other countries2.
2. Forecast Business and Economic Conditions: The BOP can help forecast business and economic
conditions2.
3. Helps in Regulating Import and Export: The BOP helps in regulating import and export2.
4. Clarifies Foreign Exchange Position: The BOP clarifies the foreign exchange position2.
5. Assist in Formulating Policies: The BOP assists in formulating policies2.

In essence, the BOP provides a comprehensive view of a country’s economic transactions with
the rest of the world, and it plays a crucial role in a country’s economic policy. It’s important to
note that ideally, the BOP should be zero, meaning that assets (credits) and liabilities (debits)
should balance, but in practice, this is rarely the case1. Thus, the BOP can tell the observer if a
country has a deficit or a surplus and from which part of the economy the discrepancies are
stemming1.

c) What do you mean by NGO? Discuss the important of NGO on the economic development of
Bangladesh. Describe the criticism of NGOs in Bangladesh. Recommendation to reduce the NGO’s
criticism.

A Non-Governmental Organization (NGO) is a group that functions independently of any

government with the objective of improving social conditions1. NGOs are typically non-profit
institutions1. They are sometimes called civil society organizations and are established on
community, national, and international levels to serve a social or political goal such as a
humanitarian cause or the protection of the environment1.

NGOs play a significant role in the economic development of Bangladesh23456. They have been
instrumental in:

1. Alleviating Poverty: NGOs have implemented various programs aimed at poverty reduction,
such as microcredit programs and employment creation2.
2. Education and Healthcare: They have provided non-formal education and primary healthcare
services2.
3. Promoting Participation: NGOs have promoted participation in asset-building and grassroots
advocacy programs2.
4. Addressing Diverse Needs: NGOs in Bangladesh work on a wide range of issues including
women’s rights, environmental protection, education, healthcare, and more 6.

However, NGOs in Bangladesh have faced criticism for several reasons78392:

1. Limited Reach: NGOs have been criticized for not reaching the most marginal poor23.
2. Duplication of Services: There is criticism about causing confusion among people by duplicating
government services2.
3. Lack of Transparency: NGOs have been criticized for their lack of transparency, both functionally
and financially9.
 4. Involvement in Corruption and Political Patronage: There have been allegations of corruption
and political patronage3.
5. High Interest Rates: Some NGOs have been criticized for charging high effective interest rates3.

To reduce criticism and enhance the effectiveness of NGOs in Bangladesh, the following
recommendations can be made79:

1. Increase Transparency: NGOs should increase their transparency in terms of their operations
and financial management9.
2. Improve Outreach: Efforts should be made to reach the most marginalized poor and ensure that
their services are accessible to all7.
3. Avoid Duplication of Services: NGOs should coordinate with government agencies to avoid
duplication of services7.
4. Strengthen Governance: NGOs should strengthen their governance structures to prevent
corruption and political patronage7.
5. Regulate Interest Rates: NGOs that provide microcredit services should regulate their interest
rates to ensure they are fair and affordable7.
6. Engage in Social Enterprises: NGOs should engage more in social enterprises to ensure their
sustainability and continue to help the people left behind7.

d) What is Micro Credit? Describe the roles of micro credit in rural development of Bangladesh. What
are the role of micro credit in eliminating poverty in Bangladesh? What are the impact of micro credit on
women’s empowerment in Bangladesh?

Microcredit is a form of microfinance that involves an extremely small loan given to an

individual to help them become self-employed or grow a small business1. These borrowers tend
to be low-income individuals, especially from less developed countries1. Microcredit is also
known as “microlending” or "microloan"1.

The roles of microcredit in rural development of Bangladesh are significant234:

1. Alleviating Poverty: Microcredit helps in the alleviation of poverty2.

2. Employment and Entrepreneurship: It aids in employment and entrepreneurship2.
3. Agricultural Productivity: It leads to higher productivity from agriculture2.
4. Women Empowerment and Gender Equality: Microcredit plays a role in women empowerment
and promoting gender equality2.
5. Reduced Rural Outmigration: It helps in reducing rural outmigration2.
6. Better Health and Education: It contributes to better health and education2.
7. Green Entrepreneurship: It encourages green entrepreneurship2.
8. Adoption of Modern Technology/Inputs in Agriculture: It facilitates the adoption of modern
technology/inputs in agriculture2.

The role of microcredit in eliminating poverty in Bangladesh is also noteworthy564. Microcredit

accounted for a 10 percent reduction in rural poverty in Bangladesh over time, meaning
microfinance institutions (MFIs) lifted some 2.5 million Bangladeshis from the ranks of the
poor4.
The impact of microcredit on women’s empowerment in Bangladesh is substantial78910. The
findings of various studies show that microcredit reduces economic problems of women and
helps to enhance economic empowerment810. After taking a loan or involving with microcredit,
women’s family income, expenditure, and savings increased significantly810. Microcredit
program was positively associated with each dimension of women empowerment as well as
aggregate measure of empowerment9. So, these studies reveal that microcredit program
improves the women empowerment in Bangladesh9.

e) What is unemployment? Discuss the nature of unemployment problems in Bangladesh. What are the
causes of unemployment problem in Bangladesh?

Unemployment is a term referring to individuals who are employable and actively seeking a job
but are unable to find a job1. It’s a key economic indicator because it signals the ability (or
inability) of workers to obtain gainful work and contribute to the productive output of the
economy2.

The nature of unemployment problems in Bangladesh is multifaceted34. Unemployment

hinders the economic development of Bangladesh3. The country has more unemployment in
rural areas than in urban areas3. The total number of unemployed persons in rural areas is 1.82
million whereas in urban areas it’s 0.77 million3. Despite high economic growth, agriculture and
industry sectors have been unable to create enough jobs4. Youth unemployment remains a big
problem for Bangladesh’s economy4. Employment elasticity, which indicates the ability of an
economy to generate employment opportunities for its population as percent of its growth
process, declined between fiscal 2005-06 and 2017-18, when the economy was apparently on
tremendous growth momentum4.

The causes of unemployment in Bangladesh include356:

1. Overpopulation: Higher population growth rate and overpopulation are the principal reasons
for unemployment in this country3.
2. Underdeveloped Economy: The economy of Bangladesh is underdeveloped and based on
agriculture3.
3. Lack of Capital: Bangladeshi people have small savings because of lower per capita income3.
4. Lack of Technical Education: There is a need for skilled labor in all industries3.
5. Natural Calamities: Every year many people get unemployed because of river erosion, floods,
cyclones, etc3.
6. Political Instability: Political instability and unskilled administration weaken our social
structures3.
7. Agriculture Dependency: Most of the people of Bangladesh directly or indirectly depend on
agriculture3.

These factors together contribute to the unemployment problem in Bangladesh. It’s a complex
issue that requires comprehensive strategies to address.
 f) What are the main causes of inflation? How can it be controlled? Why must the central bank fight for
inflation?

Inflation is a sustained increase in the general price level of goods and services in an economy
over a period of time12. The main causes of inflation are either excess aggregate demand
(economic growth too fast) or cost-push factors (supply-side factors)12. Here are some common
causes:

1. Demand-pull inflation: This occurs when aggregate demand grows faster than aggregate
supply1.
2. Cost-push inflation: For example, higher oil prices feeding through into higher costs1.
3. Devaluation: This increases the cost of imported goods, and also boosts domestic demand1.
4. Rising wages: Higher wages increase firms’ costs and increase consumers’ disposable income to
spend more1.
5. Expectations of inflation: High inflation expectations cause workers to demand wage increases
and firms to push up prices1.

To control inflation, several strategies can be implemented345:

1. Monetary Policy: Higher interest rates reduce demand in the economy, leading to lower
economic growth and lower inflation3.
2. Control of Money Supply: Monetarists argue there is a close link between the money supply
and inflation, therefore controlling money supply can control inflation3.
3. Supply-side Policies: Policies to increase the competitiveness and efficiency of the economy,
putting downward pressure on long-term costs3.
4. Fiscal Policy: A higher rate of income tax could reduce spending, demand, and inflationary
pressures3.
5. Wage/Price Controls: Trying to control wages and prices could, in theory, help to reduce
inflationary pressures3.

The central bank fights inflation because it’s part of their mission to ensure price stability678910.
Inflation erodes the purchasing power of money, which can lead to economic instability 678910.
Central banks aim for a moderate, positive inflation rate to encourage gradual, steady growth 9.
If inflation occurs too rapidly, it can push prices for basic necessities out of reach 678910.
Therefore, central banks use tools like interest rates and monetary policy to keep inflation
within a target range678910.

g) What is blue economy? Discuss the prospects and challenges of the blue economy in Bangladesh.
Why is the blue economy important for Bangladesh?

The Blue Economy is the sustainable use of ocean resources for economic growth, improved
livelihoods and jobs, while preserving the health of marine and coastal ecosystems 123. It covers
economic activities such as fishing, aquaculture, and tourism that depend on healthy oceans
and seas but also includes new industries like biotechnology and maritime transport 123.

The prospects of the Blue Economy in Bangladesh are significant45. Bangladesh has a great
potential in the field of blue economy due to its geographic proximity to water bodies and
abundant seafood and fishery products4. The country has adopted steps to ensure sustainable
use of the oceans, seas and marine resources attaining inclusive development 5. Bangladesh has
710 km long coastline with an exclusive economic zone of 200 Nautical Miles inside the Bay of
Bengal5. The ocean of Bangladesh is contributing a noteworthy role to its overall socio-
economic growth through enhancing the economic activities across the country and especially
to the coastal zone at southern part5. A new economic area for Bangladesh is demarcated in the
Bay of Bengal5. Already, Bangladesh has taken steps to flourish its Blue Economy in order to
utilize its new marine resources5.

However, there are several challenges that Bangladesh faces in harnessing the full potential of
its blue economy67. These include lack of a policy directly on the blue economy, inadequate
implementation or enforcement mechanisms of measures, scarcity of resource persons at the
ministry or department level, a lack of marine friendly infrastructure for marine tourism, scant
efforts to sufficiently protecting mangrove forests, a lack of investment-friendly environment,
inadequate initiatives for protecting coastal bio-diversity and addressing environmental change,
insufficient efforts to managing carbon discharge, inadequate inter-ministerial coordination,
land-based and ship-borne marine pollution, inadequate capacity to maximize the use of blue
resources, unsustainable extraction, destruction of marine and coastal habitats, climate change
and sea-level rise, marine pollution and lack of adequate focus on extra-regional players 67.

The importance of the Blue Economy for Bangladesh is manifold89. It offers potential and
opportunities for the development of fisheries, aquaculture, trade, transport, tourism, and
renewable energy9. The blue economy is important to Bangladesh’s sustainable economy
because it enhances the economic activities across the country and especially to the coastal
zone at southern part5. It facilitates more economic activities, generating employment
opportunities, strengthening tourism sector development, extraction of gas and oil, minimizing
food deficit, generating tax revenue for government and escalation of standard of living of
coastal people of Bangladesh10.

h) What is technology transfer? Write the process of technology transfer. Why is technology transfer
important? Describe the methods of technology transfer.

Technology Transfer is the movement of data, designs, inventions, materials, software,

technical knowledge, or trade secrets from one organization to another or from one purpose to
another123. It’s an intrinsic part of the technological innovation process and involves many non-
scientific and non-technological factors, and many different stakeholders 3.
The process of technology transfer typically includes the following steps14:

1. Invention Disclosure: The researcher submits a Disclosure of Invention Form describing the
invention4.
2. Evaluation: The invention is evaluated for its potential for commercialization4.
3. Patent Application: A patent application is filed to protect the intellectual property4.
4. Assessment and Marketing: The invention is assessed for its market potential and marketing
activities are initiated4.
5. Patent Licensing: The patent is licensed to an external entity for further development and
commercialization4.
6. Commercialization: The licensed technology is developed into a marketable product or service 4.

Importance of Technology Transfer: Technology transfer is important because it helps develop

early-stage intellectual property into tools for research or as a base for new products and
services for public use56. It ensures that the company’s innovation becomes commercialized6. It
plays a crucial role in connecting innovation stakeholders and moving inventions from creators
to public and private users3.

Methods of Technology Transfer: Technology transfer can occur through various methods2678:

1. Technology Push: This takes place when a company or university patents its invention and
licenses it to other companies6.
2. Market Pull: This is when new technologies are developed in response to demand for a product
or service6.
3. Technological Spillover: This takes place when new advances in one area stimulate progress in
another6.
4. Horizontal and Vertical Transfer: Horizontal transfer occurs across different areas or industries,
while vertical transfer involves moving technologies from research centers to research and
development teams2.
5. Internal and External Transfer: Internal transfer occurs within an organization, while external
transfer involves sharing technology with other organizations8.
6. Commercial and Noncommercial Transfer: Commercial transfer is aimed at profit-making, while
noncommercial transfer aims at societal benefits8.
7. Passive and Active Transfer: Passive transfer occurs without any concerted effort, while active
transfer involves a concerted effort to share skills, knowledge, technologies, manufacturing
methods, samples, and facilities among the participants8.

i) What is SDG? Why it is created? What are the most important goals, describe them? What is SDG in
BD? What is Global Economic integration? The impact of Globalization in Bangladesh, explain it.

Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by the
United Nations in 2015 as a universal call to action to end poverty, protect the planet, and
ensure that by 2030 all people enjoy peace and prosperity1. They are a set of 17 goals and 169
targets aimed at resolving the social, economic, and environmental problems troubling the
world2.

The SDGs were created to meet the urgent environmental, political, and economic challenges
facing our world3. They replace the Millennium Development Goals (MDGs), which started a
global effort in 2000 to tackle the indignity of poverty3. The SDGs are designed to end poverty,
hunger, AIDS, and discrimination against women and girls1.

The most important goals of the SDGs include4:

1. No Poverty: End poverty in all its forms everywhere.

2. Zero Hunger: End hunger, achieve food security and improved nutrition, and promote
sustainable agriculture.
3. Good Health and Well-being: Ensure healthy lives and promote well-being for all at all ages.
4. Quality Education: Ensure inclusive and equitable quality education and promote lifelong
learning opportunities for all.
5. Gender Equality: Achieve gender equality and empower all women and girls.

In Bangladesh, the UN and its partners are working towards achieving the SDGs: 17
interconnected Goals which address the major development challenges faced by people in
Bangladesh and around the world5. The UN in Bangladesh has been supporting the government
as one of the development partners in various projects in the field of sustainable development
solutions5.

Global Economic Integration is an arrangement among nations that typically includes the
reduction or elimination of trade barriers and the coordination of monetary and fiscal policies 6.
It aims to reduce costs for both consumers and producers and to increase trade between the
countries involved in the agreement6.

The impact of Globalization in Bangladesh has been significant. As a result of globalization, the
social system in Bangladesh is changing very fast7. Family breakdown, divorce, separation, old
age problems, drug addiction, terrorism, and militancy are increasing daily 7. The impact of
globalization is causing severe damage to the environment of this country7. Despite these
challenges, globalization has also brought some positive impacts such as increased life
expectancy, reduced inequality between the rich and poor, increased employment, spread of
new knowledge and technology, and improved availability of goods and services 8.

j) Critically describe the areas of women rights as provided in the Constitution of Bangladesh. Do you
consider this adequate?

The Constitution of the People’s Republic of Bangladesh provides several provisions for
women’s rights12.
 1. Non-Discrimination: Article 27 of the constitution guarantees non-discrimination and equal
protection under the law for all its citizens, including women2.
2. Equal Rights: Article 28 (1) of the constitution guarantees that women shall have equal rights
with men in all spheres of the State and of public life1.
3. Voting Rights: The Constitution of Bangladesh guaranteed women the same voting rights as
their male counterparts3.
4. Equal Opportunities: The constitution also guaranteed equal opportunities, such as serving in
parliament3.

While these provisions are significant steps towards ensuring gender equality, it’s important to
note that the realization of these rights is influenced by a variety of factors, including societal
norms, implementation of laws, and access to resources.

As for whether this is adequate, it’s a complex question. On one hand, the constitution does
provide a legal framework for gender equality. On the other hand, the practical realization of
these rights often falls short due to societal norms, gender biases, and other barriers.
Therefore, while the constitutional provisions are a crucial foundation, additional efforts are
needed to ensure these rights are fully realized in practice. This includes measures such as
education, awareness-raising, and enforcement of laws, among others. It’s also important to
continually review and update these provisions to ensure they remain relevant and effective in
addressing the evolving challenges faced by women.

Chapter-8: Local and International Measures for Economic

Development
a) What do you mean by capital formation? Why capital formation is important for Bangladesh? What
are the sources of capital formation in Bangladesh?

Capital Formation is the net accumulation of capital goods, such as equipment, tools,
transportation assets, and electricity, during an accounting period for a particular country 1. It’s
a key measure of a country’s economic health1. Boosting production and investment tends to
result in the population becoming better off and having more money to spend, which helps to
drive economic growth1.

Capital formation is important for Bangladesh for several reasons2:

1. Economic Growth: Capital formation acts as a bridge of long-term financing for the industrial
development of a country2.
2. Contribution to GDP: The turnover of the capital market, which is a part of capital formation,
contributes to the GDP of the country2.
3. Boosts Production: Capital formation helps boost a country’s manufacturing and services sector,
leading to higher production within the country’s economy2.

The sources of capital formation in Bangladesh include3:

 1. Savings and Investments: To accumulate additional capital, a country needs to generate savings
and investments from household savings or based on government policy1.
2. Capital Market: The capital market acts as a bridge of long-term financing for the industrial
development of a country through the selling and purchasing of shares, debentures, bonds,
mutual funds, treasury bills, certificates, etc2.
3. Foreign Direct Investment (FDI): FDI is another source of capital formation where foreign
investors invest in local companies3.
4. Public and Private Sector Investments: Both public and private sector investments contribute to
capital formation3.
5. Banks and Financial Institutions: Banks and financial institutions provide loans and credits
which contribute to capital formation3.
6. Government Policies: Government policies and initiatives also play a crucial role in capital
formation3.

b) What is meant by monetary policy? Which type of monetary policy is the most commonly used?
(Open market operation) What are the features of monetary policy?

Monetary Policy is a set of tools used by a nation’s central bank to control the overall money
supply and promote economic growth123. It employs strategies such as revising interest rates
and changing bank reserve requirements123. The usual goals of monetary policy are to achieve
or maintain full employment, to achieve or maintain a high rate of economic growth, and to
stabilize prices and wages2.

The most commonly used type of monetary policy is Open Market Operations1. This involves
the buying or selling of government securities (usually bonds) by the central bank 1. For
example, if the central bank buys government securities, it pays with a check drawn on itself,
which creates money in the form of additional deposits from the sale of the securities by
commercial banks1. This action increases the cash reserves of the commercial banks, enabling
them to increase their lending capacity1. The purpose of this operation is to ease the availability
of credit and to reduce interest rates, which thereby encourages businesses to invest more and
consumers to spend more1.

The features of Monetary Policy include4:

1. Control of Money Supply: Monetary policy is the control of the quantity of money available in
an economy and the channels by which new money is supplied4.
2. Influence on Economic Conditions: Monetary policy influences economic conditions by
manipulating the supplies of money and credit and by altering rates of interest4.
3. Achievement of Economic Objectives: The usual goals of monetary policy are to achieve or
maintain full employment, to achieve or maintain a high rate of economic growth, and to
stabilize prices and wages4.
4. Use of Various Tools: The central bank uses various tools in regulating the money supply,
including open-market operations, the discount rate, and reserve requirements 4.
 5. Expansionary or Contractionary: Monetary policy is commonly classified as either expansionary
or contractionary, depending on the level of growth or stagnation within the economy 4.

c) What is fiscal policy? What are the objectives of fiscal policy? Difference between monetary policy &
fiscal policy.

Fiscal Policy refers to the use of government spending and tax policies to influence economic
conditions, especially macroeconomic conditions123. It’s based on the ideas of British economist
John Maynard Keynes, who argued that governments could stabilize the business cycle and
regulate economic output by adjusting spending and tax policies 1.

The objectives of fiscal policy in a developing economy generally include4:

1. Full Employment: Achieving and maintaining full employment in an economy4.

2. Price Stability: Maintaining or stabilizing the economy’s growth rate4.
3. Accelerating Economic Development: Encouraging economic development4.
4. Optimum Allocation of Resources: Ensuring resources are allocated optimally4.
5. Equitable Distribution of Income and Wealth: Promoting equitable distribution of income and
wealth4.
6. Economic Stability: Maintaining equilibrium in Balance of Payments4.
7. Capital Formation and Growth: Encouraging capital formation and growth4.
8. Encouraging Investment: Encouraging investment4.

The difference between monetary policy and fiscal policy lies in the tools they use and their
administrative bodies567.

Monetary Policy is primarily concerned with the management of interest rates and the total
supply of money in circulation, and is generally carried out by central banks 5. It addresses
interest rates and the supply of money in circulation5.

On the other hand, Fiscal Policy addresses taxation and government spending, and it is
generally determined by government legislation5. Fiscal policy is a government’s approach to
taxation, spending, and budgeting that influences economic activity and overall macroeconomic
conditions5.

d) What are effects of deficit financing on economic growth in Bangladesh?

Deficit financing, which refers to the practice of a government spending more than its revenue,
has both positive and negative effects on the economic growth of Bangladesh123.

In the long run, government domestic debt (GDD), government external debt (GEXD), and
money supply (MS) have a positive impact on economic growth (RGDP)13. This supports the
Keynesian theory that deficit financing can stimulate economic growth if the borrowed money
is spent on beneficial projects, provided the return from such investments exceeds the funding
cost1.

However, in the short run, GDD, external debt, and MS negatively affect economic growth 13.
This aligns with the Neo-classical theory which asserts that fiscal deficits lead to a drop in the
GDP2. High governmental demand for credit lending can raise the rate of interest and further
discourage the issue of private securities and bonds, private spending and investment, expand
the level of inflation and cause a comparable expansion in the deficit of current account,
eventually resulting in lowering the economic growth through crowding out of the resources 2.

Therefore, while deficit financing can contribute to economic growth, it’s important for the
government to strive to keep the deficit under control, not to hamper growth, and expenditure
ought to be set so as to avoid massive deficits leading to debt financing and the crowding-out
effect of private investment1. If deficits become unsustainable, it can lead to higher interest
payments, and the government may well default1.

e) What are the causes of debt problems in Bangladesh? What is the future of Bangladesh’s debt written
macro-economy? Is foreign debt a problem for Bangladesh?

The causes of debt problems in Bangladesh include several factors12:

1. Current Account Deficit: The surge in the current account deficit in FY2022, pushed by global
inflation, has led to considerable pressure on the exchange rate, increase in short-term
borrowings, and a depletion of foreign exchange reserves1.
2. Infrastructure Projects: High cost of infrastructure projects, often described as “mega
projects”2.
3. Banking Sector Crisis: Crisis in the banking sector due to widespread default of loans2.
4. Resource Waste: Waste of resources in the energy sector2.
5. Capital Flight: Capital flight2.
6. Unsustainable Infrastructure Spending: Unsustainable infrastructure spending2.

As for the future of Bangladesh’s debt-ridden macro-economy, data obtained from the
Bangladesh Bank shows that the country’s total external debt increased to nearly $96.25 billion
at the end of December 20223. The unprecedented current account deficit has led to
considerable pressure on the exchange rate, increase in short-term borrowings, and a depletion
of foreign exchange reserves3. Many see these developments as evidence of growing
vulnerability of the balance of payments and the external debt situation3. There is also a worry
that the scheduled repayment of loans for a number of large infrastructure projects in the
coming years will add to these pressures3. This injection of new money into the economy is
adding to the high inflation3. So, we need to ask this now: what is the future of Bangladesh’s
debt-ridden economy3?

Regarding whether foreign debt is a problem for Bangladesh, it’s a complex issue. On one
hand, Bangladesh has traditionally managed its external debt prudently1. It has maintained a
surplus or low deficit in the current account; it has largely relied on publicly-funded low-cost
medium- and long-term foreign borrowing to finance its trade and investment needs; and the
use of short-term credit has been modest1. On the other hand, the surge in the current account
deficit in FY2022, pushed by global inflation, has led to considerable pressure on the exchange
rate, increase in short-term borrowings, and a depletion of foreign exchange reserves 1. Many
see these developments as evidence of growing vulnerability of the balance of payments and
the external debt situation1. Therefore, while foreign debt is not necessarily a problem, it’s
important for the government to manage it prudently to avoid potential issues.

f) What are the roles of foreign aid in the economic development of Bangladesh? What are the examples
of foreign aid in Bangladesh?

Foreign aid plays a vital role in the economic development of Bangladesh12. Here are some of
the roles it plays:

1. Complements Government’s Tax Receipts: Aid complements a government’s tax receipts, a

large part of which goes towards funding the annual development programme (ADP). The ADP
represents the bulk of public investments in the form of new infrastructure that is vital to the
growth and development of the country3.
2. Fuels Public Investment: Typically, aid fuels public investment. Net foreign assistance (gross
inflows of grants and loans, net of repayments) have continued to rise gradually over the years 3.
3. Finances Development Projects: Taking into account its role in plugging the budget deficit, one
can conclude that its role in financing development projects remains significant 3.
4. Improves Social Indicators: Improvements in the social indicators can be largely attributed to
the efforts of the Government of Bangladesh (GoB) and Non-government Organizations (NGOs),
along with foreign aid received in sectors that improved social indicators in Bangladesh 4.

As for examples of foreign aid in Bangladesh, here are a few:

1. Health Sector: Foreign aid towards health has increased from approximately USD 138 Mn in
2001 to USD 203 Mn in 2018. Therefore, improvements in the social indicators can be largely
attributed to the efforts of the Government of Bangladesh (GoB) and Non-government
Organizations (NGOs), along with foreign aid received in sectors that improved social indicators
in Bangladesh4.
2. Pandemic Response: The global pandemic in 2020 increased the flow of foreign aid in
Bangladesh by 167% of the targeted foreign aid assistance. Along with that multilateral agencies
 such as IMF and The World Bank have provided emergency loans of USD 732 Mn and USD 1,050
Mn respectively to help Bangladesh during this crisis4.
3. Disaster Risk Management: With USAID/BHA DRR support since FY 2019, Catholic Relief
Services (CRS) has coordinated with community members and local government officials in
eastern Bangladesh’s Chittagong Division to develop climate adaptation and disaster risk
management plans, strengthening host communities’ resilience to cyclones, flash floods, and
other hazards5.

g) Who provide the foreign aids to Bangladesh? What are the major donors of foreign aids to
Bangladesh? Which countries are the top 5 receivers of foreign aid from the US?

Foreign aid to Bangladesh comes from a variety of sources. The largest donors during the
period between 2001 and 2019 were Japan (USD 71,250 Mn), the United Kingdom (USD 44,835
Mn), the United States (USD 31,933 Mn), Germany (USD 14,666 Mn), and the Netherlands (USD
11,648 Mn). The top three multilateral donors were the International Development Association
(USD 107,260 Mn), EU Institutions (USD 19,803 Mn), and the United Nations (USD 12,799 Mn) 1.

As for the top 5 receivers of foreign aid from the US, they are234:

1. Israel ($3.3B)

2. Jordan ($1.6B)

3. Afghanistan ($1.4B)

4. Ethiopia ($1.39B)

5. Egypt ($1.29B)

Please note that these figures are subject to change as they are dependent on various factors
such as geopolitical influences, economic conditions, and national priorities. Also, the amounts
are in billions of US dollars.

h) Discuss the advantages and disadvantages of foreign aid.

Advantages of Foreign Aid123:

1. Domestic and International Benefits: Foreign aid benefits the domestic economy at the same
time as the international one1. The issuance of foreign aid can take on several different forms1.
Governments can offer it as an outright gift or grant that does not require any repayment 1.
Another option is to offer a low-interest loan that allows for a small window of profit to the
gifting nation1.
 2. Stronger Relationships: Foreign aid creates a stronger relationship for all the parties involved in
the transaction1. An individual, business, or government can offer foreign aid to take advantage
of this benefit1. People often receive benefits when they give them to others1.
3. Reduction of Poverty: Foreign aid can reduce the impact of poverty1. 80% of the world’s
population lives on a salary of $10 or less per day1.

Disadvantages of Foreign Aid456:

1. Distortion of Market Forces: Foreign aid can disrupt the normal functioning of markets by
artificially lowering prices or creating competition for local businesses6.
2. Exploitation: Donor countries or companies may use foreign aid as a means to exploit recipient
countries’ resources or labor market6.
3. Foreign Aid May Contribute to Higher Inflation: Foreign aid may contribute to higher inflation4.
4. Free Market Forces May No Longer Work Properly: Free market forces may no longer work
properly4.
5. Smaller Businesses May Lose Their Competitiveness: Smaller businesses may lose their
competitiveness4.
6. Investors May Exploit Foreign Countries: Investors may exploit foreign countries4.
7. May Not Be Enough to Solve Structural Problems: Foreign aid may not be enough to solve
structural problems4.
8. May Increase Global Tensions Among Countries: Foreign aid may increase global tensions
among countries4.

It’s important to note that the effectiveness of foreign aid can vary greatly depending on how
it’s used and the specific circumstances of the recipient country. Therefore, while foreign aid
can bring significant benefits, it’s crucial to ensure that it’s used effectively and responsibly.

i) What do you mean by FDI? What are the impacts of foreign direct investment on the economy of
Bangladesh? Which countries are investing on Bangladesh as FDI? Which sectors are suitable for FDI on
Bangladesh?

Foreign Direct Investment (FDI) refers to an ownership stake in a foreign company or project
made by an investor, company, or government from another country 123. FDI is generally used to
describe a business decision to acquire a substantial stake in a foreign business or to buy it
outright to expand operations to a new region2. The term is usually not used to describe a stock
investment in a foreign company alone2. FDI is a key element in international economic
integration because it creates stable and long-lasting links between economies 2.

The impacts of foreign direct investment on the economy of Bangladesh are significant4. FDI is
a potential weapon for economic development, especially for Bangladesh4. It helps the country
in building up infrastructure, creating more employment, developing capacity, enhancing skills
of the labor force of the host country through transferring technological knowledge and
managerial capability, and helping in integrating the domestic economy with the global
economy4. However, a study found a negative relationship between FDI and GDP in the short-
run, indicating that the absorptive capacity of Bangladesh is not sufficient enough to avail the
FDI for promoting economic growth4.

The countries investing in Bangladesh as FDI include Japan, the United Kingdom, the United
States, Germany, and the Netherlands5. The top three multilateral donors were the
International Development Association, EU Institutions, and the United Nations 5.

The sectors suitable for FDI in Bangladesh include power generation, infrastructure
development, private port establishment, joint venture with deep sea port establishment under
PPP, ship building, ICT sector, call center, education, healthcare, mining, gas extraction, agro
processed product, electrical and electronics, light engineering, and fashion designing 6.

j) What are the challenges in boosting private investment in Bangladesh?

Boosting private investment in Bangladesh faces several challenges123:

1. Unconducive Policies: Policies that are not conducive to business growth can deter private
investment3.
2. Unclear Processes and Complicated Regulations: Unclear processes and complicated and
contradictory regulations can create confusion and discourage investors 3.
3. Tax Disputes and Legal Hassles: Tax disputes and legal hassles can create uncertainty and risk
for investors3.
4. Lack of Predictability and Effectiveness of Tax Incentives: If tax incentives are unpredictable or
ineffective, they may not provide the intended encouragement for investment 3.
5. Hurdles in Claiming Tax Benefits: If there are hurdles in claiming tax benefits, it can discourage
investment3.
6. Infrastructure: Building and maintaining quality infrastructures is a challenge that has
implications on private investment1.
7. Doing Business: Reducing bottlenecks in doing business is a major challenge in boosting private
investment1.
8. Political Harmony: Bringing political harmony is a challenge that has implications on private
investment1.
9. Decision-making Process: Accelerating the decision-making process is a challenge that has
implications on private investment1.
10. Corruption and Governance: Removing corruption and ensuring good governance are
challenges that have implications on private investment1.
11. Human Capital: Advancing the quality of human capital is a challenge that has implications on
private investment1.
12. Investment Promotion Policies: Reforming investment promotion-related policies are
challenges that have implications on private investment1.

These challenges need to be addressed to create a more conducive environment for private
investment in Bangladesh.
k) What do you mean by MNC? Write the name of top 10 MNC in Bangladesh. What are the roles of
multinational corporations in national economy of Bangladesh? What are the challenges faced by MNC
in Bangladesh?

A Multinational Corporation (MNC) is a company that has business operations in at least one
country other than its home country and generates revenue outside of its home country 123.
MNCs are also known as multinational enterprises (MNEs), transnational enterprises (TNEs),
transnational corporations (TNCs), international corporations, or stateless corporations 2.

The top 10 MNCs in Bangladesh are45:

1. Unilever Bangladesh
2. British American Tobacco Bangladesh
3. Nestle Bangladesh
4. Grameenphone Ltd
5. Standard Chartered Bank
6. Japan Tobacco International Bangladesh
7. Coca-Cola Bangladesh
8. Bata Shoe Company
9. Procter & Gamble Bangladesh
10. Chevron Bangladesh

The roles of multinational corporations in the national economy of Bangladesh are

significant678. MNCs play a pivotal role in economic development, infrastructure improvement,
and elevating living standards8. They contribute to substantial economic growth, job creation,
infrastructure development, improved living standards, and the invaluable exchange of
knowledge and technology67. MNCs also facilitate foreign direct investment, bolster the nation’s
global outreach, and solidify Bangladesh’s position on the world stage6.

However, MNCs in Bangladesh face several challenges9101112:

1. Market Imperfections: MNCs may face challenges that can reduce their ability to forecast
business conditions due to unclear processes and complicated regulations9.
2. Tax Competition: Countries compete against one another for the establishment of MNC
facilities, subsequent tax revenue, employment, and economic activity 9.
3. Political Instability: Many MNCs face the challenge of political instability when doing business in
international markets9.
4. Market Withdrawal: The size of MNCs can have a significant impact on government policy,
primarily through the threat of market withdrawal9.
5. Operational Challenges: Many entrepreneurs in Bangladesh are still not skilled at managing
their company’s financial aspects11.
6. CSR Strategy: The findings indicate that most of the MNCs in Bangladesh are moving toward
strategic CSR and away from the conventional altruistic (philanthropic) CSR12.
 7. Political Crisis: Financial analyst Zia Hassan told Al Jazeera that while the political impasse
obviously exacerbated economic instability, the roots of the struggle around the balance of
payments and dollar reserves can be traced back to deeper structural weaknesses in
Bangladesh’s import-dependent, and undiversified economy13.

l) What do you mean by NIEO? What was the main vision of NIEO? Why did the NIEO fail?

The New International Economic Order (NIEO) is a set of proposals advocated by developing
countries to end economic colonialism and dependency through a new interdependent
economy1. The NIEO was established to transform the governance of the global economy to
redirect more of the benefits of transnational integration toward “the developing nations” 1. It
sought to complete the geopolitical process of decolonization and create a democratic global
order of truly sovereign states1.

The main vision of the NIEO was to bring about social justice among the trading countries of
the world2. It aimed to restructure existing institutions and form new organizations to regulate
the flow of trade, technology, capital funds in the common interest of the world’s global
economy and due benefits in favor of the Less Developed Countries (LDCs)2. The NIEO called for
changes in trade, industrialization, agricultural production, finance, and transfer of technology 1.

Despite its noble vision, the NIEO failed for several reasons3. While everyone involved might
have agreed that the goal of the NIEO was to improve the economic position of the global south
in relation to the global north, there was no consensus about the ultimate political ends, much
less about the best way to achieve those ends4. The NIEO emerged during a narrow and specific
window of geopolitical opportunity, a “moment of disjunction and openness,” when wildly
divergent political possibilities appeared suddenly plausible3. However, it faded from view
during the 1980s, replaced by discussions of structural adjustment programs, the Washington
consensus, and the “end of history”3. Today, the NIEO is almost completely forgotten3.