When Bangladesh was deemed a ‘basket case’ right after its independence in 1971, it was difficult to find any economist or development experts who would oppose this argument. After half a century, it is now difficult to find any economist or development expert who supports the notion of Bangladesh being a basket case.
Graduation from the Least Developed Country (LDC) bracket – which Bangladesh is scheduled to achieve in 2026 – is no small feat. However, being a middle-income country isn’t and shouldn’t be the ultimate goal for a nation. Luckily for us, Bangladesh is not planning to stop there. As per the national strategic plan Vision 2041, Bangladesh aspires to become an upper middle income (UMIC) country by 2031 and a higher income country (HIC) by 2041.
However, if Bangladesh wishes to materialize this ambitious goal of becoming a higher-income country, it needs to venture out on the path of economic upgrading and diversification. Because being stuck with the sectors that have pushed us this far will not be enough to push us to the HIC status and will leave Bangladesh in the ‘middle-income trap’. Economic upgrading is the concerted move towards higher value economic activities brought forward by enhancement of technology, skills, or wider participation in global value chains, which ushers an economy to the developed status.
Middle Income Trap & its Escape Velocity
There are several glimmering examples of upgradation which lead the countries to become developed. However, not all countries are success stories. In fact, very few countries have successfully managed the transition from low to middle to high income. From 1960 to 2010, only 15 out of 101 middle-income economies escaped the middle-income trap. These countries failed to upgrade and diversify, which led their economy to stagnation. This phenomenon is dubbed as “Middle Income Trap”.
The term, coined by the World Bank economists Indermit Gill and Homi Kharas in 2006, refers to a situation whereby a middle-income country is failing to transition to a high-income economy due to rising costs and declining competitiveness.
In Latin America and the Middle East region, we can see examples of several economies that are stuck in the middle-income trap. If we look at the GDP per capita for South Korea, Brazil, the Philippines, and Syria from 1950 to 2006, we can notice all the countries “took off” in growth from the mid-1970s. Only South Korea managed to grow throughout the period, while the other economies levelled off over the period.
Some other countries in Asia which have faced the “Middle-Income trap” are Malaysia, Thailand, Indonesia, and the Philippines. All of the countries experienced stagnation in global competitiveness.
The World Bank (2010) identifies two necessities for sustaining a country’s economic growth and competitiveness in order to move into the higher-income group. The requirements are –
- High levels of investment in new technologies, and
- Innovation-friendly policies.
In short, investment and innovation are the key elements that move a middle-income economy into a high-income one.
The Upgradation of Economy
Economic upgradation can be defined as ‘the process by which economies move from low-value to relatively high-value activities within the global value chain.’ Economic upgrading is largely about gaining competitiveness in higher value-added products, tasks, and sectors. In simpler terms, shifting from the low-value industries which are built on cheap and unskilled labour to industries that are high value as well as technical.
South Korea is an example of successful ‘economic upgrading’, defined as moving up to higher value-added activities with improved technology, knowledge, and skills (Gereffi, 2005). South Korea’s rapid expansion of exports was largely attributable to the constant upgrading of export product composition to higher value-added, more technologically sophisticated products, which coincided with upgrading the country’s industry structure to focus on high-tech sectors, such as electronics and information technology (IT).
Economic upgradation is the path by which some countries manage to break free of the Middle Income Trap. Because being a developed country comes with better working conditions, higher wages as well as robust social protection. These can only be afforded if an economy is upgraded.
Noted international development expert Prof. Stefan Dercon mentioned in his latest book Gambling on Development (2022) that “Upgrading means not about finding technical parts, it’s also upgrading the elite and political parts.”
According to the latest census report for 2022, more than one-fourth of the country’s total population is in the 15-29 age group. In numbers, that makes the country’s current youth population 45.9 million. The youth of Bangladesh has already taken several brave steps towards economic upgradation. Our freelancers bring in an estimated $100 million each year. We have a vibrant start-up scenario where the youth are focusing not only on goods and services but also on novel territories like robotics and semiconductor. However, there are still much more scopes to improve and territories to explore. A recent study by the Bangladesh Institute of Development Studies (BIDS) finds that the industrial sectors of the country are moving with a 30% skills gap.
Not only that, the youth can play a big role in bridging the gap between govt, the private sector, academia, etc., as well as in generating the push needed for policy reforms through effective policy research and advocacy. The reason why the youth should play this role is very simple. There is no other actor that will benefit as much from economic upgrading as young people will ten years from now. Young people are primed to seize the opportunities brought forward by the global economy, technology, and skills of the 21st century.
With that goal in mind, the policy platform for youngsters – Youth Policy Forum (YPF), has taken a multi-stakeholder policy advocacy initiative named CUBE (Coalition for Upgrading Bangladesh Economy). It is a collective impact coalition for economic diversification and upgrading. On 21st June 2022, the CUBE initiative was launched with a roundtable discussion joined by expert panellists like Economic Affairs Adviser to the prime minister Dr Mashiur Rahman, Professor at Oxford University Stefan Dercon, and Professor of SOAS, University of London Mushtaq Khan, Unilever Bangladesh CEO Zaved Akhtar and Walton CEO Golam Murshed with more prominent academics, executives, public and private sector representatives, development partners, bureaucrats, politicians, policymakers, and most importantly the youths discussed the impact of collective coalitions for economic diversification of Bangladesh.
The CUBE will be a multi-year advocacy initiative by YPF, which will push the private sector to take up upgradation and the policymakers to initiate reforms that support upgradation. It will also work towards increasing social capabilities as well as state capacity, which are paramount for a state to become a higher-income economy. Global market access and trade agreements, which will be crucial as we graduate from the LDC status, are also on the agenda of the CUBE. Last but not least, it will create a knowledge base for the nation to go forward with economic upgradation.
Concluding with another word of wisdom by Prof.Stefan Dercon, quoted in the CUBE launch event of YPF, “What took Bangladesh here, will not take [Bangladesh] there.” For this reason, now more than ever, we need to steer the wheels of the nation to a new path – a path of economic upgradation. But for it to succeed, Bangladesh will need all the hands on the steering wheel.
Reference
- “Global Economy: Organisation, Governance, and Development” (2005) by Gereffi Gary.
- “Frontiers in Development Policy: A Primer on Emerging Issues” (2011) by Raj Nallari
- “Escaping the Middle-Income Trap” (2010) by World Bank
- “Malaysia’s Middle-Income Trap” (2011) by Herizal Hazri & Nina Merchant-Vega
- “Revisiting the Miracle: Korea’s Industrial Upgrading from a Global Value Chain Perspective” (2018) by Joonkoo Lee, Sang-Hoon Lee & Gwanho Park
- “Gambling on Development” (2022) by Stefan Dercon
– Shah Minhaz Chowdhury
Communications Lead, YPF
