Trade and income inequality in Bangladesh

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During the last four decades trade has substantially contributed to monetary growth of several developing countries including Bangladesh. Also many developing countries during this period have introduced a number of trade policy reforms further accelerating the procedure of growth which includes  helped to reduce income inequality. Now in regards to a quarter of total global output is exported and the knowledge of  this phenomenon is important because trade has generated economical and financial gains. Concurrently it is equally important to examine and understand the distributional consequences of trade.

Because the 1980s the global economy has been rapidly integrating, a phenomenon referred to as globalisation. The integration of national economies into a global economical system has been the most important development  since the end of the next World War. At the core of the global economical integration process may be the international exchange of goods, services and capital. The production chains of these goods and services have grown to be increasingly complex and global.

It's estimated that almost 30 per cent of the value of global exports come from foreign imports. Also, multinational corporations (MNCs) locate different manufacturing functions in countries which are comparatively advantaged in the production of this product, then put them together in another location to make the final product resulting in intra-firm trade. The reduced amount of trade barriers under the auspices of GATT/WTO also resulted  in a phenomenal growth in what is referred to as intra-industry trade or the trade in similar products having different market characteristics. Al these factors together  have  caused amazing growth not only in trade but also in  capital flows among countries.

An over-all consensus emerged by the end of 1980s referred to as the Washington Consensus (a consensus reached  among three Washington based institutions. These three institutions are  the World Bank, the International Monetary Fund and the US Treasury) which considers that trade is central to ending global poverty and benefits low income households by offering less expensive goods and services. More importantly, the consensus has further advanced the argument that integrating with the global economy through trade and global value chains contributes to monetary growth and higher income, thus reducing poverty both locally and globally.

This link between trade and increased household welfare is achieved whenever a country opens up to trade. This results in  the demand and offer of goods and services to shift triggering local markets to respond and prices change impacting on households both as consumers and wage earners. The result of trade, therefore, has knock on effects on the prices of non-traded goods in accordance with traded goods resulting in changes in wages. As such not everyone will reap the benefits of international trade just as.

Several empirical studies do support that trade has negatively impacted on earnings, employment for wage earners and that the impact of trade on income inequality is real. Theoretically, international trade impacts income inequality through its effects on employment structure and wage structure and that may cause income inequality. As opening of trade raises the common level of productivity  for the trading sector which in turn causes increased productivity gap between this sector and the non-trading sector resulting in income differentials.

The most recent Household Income and Expenditure Survey (HIES) by the BBS indicates the Gini-coefficient-- a way of measuring income inequality  for Bangladesh stood at 0.482 in 2016. Actually, the Gini-coefficient has shown a rising trend since 1992, rising from 0.388 in 1992 to 0.482 in 2016 indicating a rising trend in income inequality in the united states. During this period the most notable 10 % of the households have already been increasing their share of income and wealth  while that of underneath 10 % declining. The share of income for the very best 10 per cent stood at 38.09 % as the same for the bottom 10 per cent was 1.02 % in 2016. If this is further narrowed down between your top 5 % and underneath 5 % of the households, it even becomes more glaring-- 27.8  per cent and 0.23 per cent  respectively.

Based on the World's Bank's Poverty and Shared  Prosperity, 2018 report Bangladesh houses 24.1 million extremely poor people  who earn significantly less than US$1.90 a day. Bangladesh now makes up about  3 % of the world's extreme poor having 2.2 % share of the global population. The high incidence of poverty and the rising income inequality will probably further worsen due the existing Covid-19 pandemic. THE STUDY Firm Wealth-X, located in NY  in its 2019 report suggested that Bangladesh would record the third fastest growth in the amount of high net worth individuals on the planet in the next five years. 

Source: https://thefinancialexpress.com.bd

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