Is Import Substitution and/or Export Led Growth Strategy Necessary for the Economic

Development of Bangladesh? Provide Your Answer with Arguments.

Introduction: - Exporting and importing helps grow national economies and expands the global
market. Every country is endowed with certain advantages in resources and skills. For example,
some countries are rich in natural resources, such as fossil fuels, timber, fertile soil or precious
metals and minerals, while other countries have shortages of many of these resources.
Additionally, some countries have highly developed infrastructures, educational systems and
capital markets that permit them to engage in complex manufacturing and technological
innovations, while many countries do not.
https://study.com/academy/lesson/importing-and-exporting-in-a-global-market.html

Bangladesh is a developing country as well as its area is very limited, so its resources are also
limited than rest of the world. Bangladesh has encouraged counter-trade for many years as a
means
to promote exports while conserving foreign exchange. Barter trade in commodities used to car
ry out with countries in Central and Eastern Europe, Central Asia, China, and North Korea, but
during FY 96 barter trade was discontinued with Bulgaria, China, the Czech Republic, Hungary
and North Korea. Bangladesh also allows special trading arrangements through the Trading
Corporation of Bangladesh. Bangladesh is one of the member countries of the South Asia Free
Trade Agreement (SAFTA) under the umbrella of the South Asia. Though
Bangladesh have to
face some limitations for import and export like agents, agency legislation, labelig and packagin
g regulations, import duties (tariff), Quotas, dumping, custom duties, taxes and so on. Though
facing these barriers Bangladesh is trying to improve their trading system as well as their
economic status. The SAFTA agreement requires Bangladesh to bring down its tariff to zero by
the end of 2012. By reducing the tariff to zero would made import from member countries
cheap which might lead to a an increase in import but other member countries will also reduce
their tariff to zero meaning Bangladesh’s export will be cheaper as well. The rise in import or
export depends solely on the elasticity of the products being exported and imported.
https://www.academia.edu/5477694/Export_led_growth_or_import_substitution_for_Banglad
esh

Though Bangladesh have huge natural resources but due to lack of capital and technology,
proper utilization of our natural resources is not possible. As a result, we have to depend on
foreign trade for importing industrial goods and exporting raw materials. By this country
establishes its economic relationship with other countries. Trade policy works by inducing
substitution effects in the production and consumption of goods and services through changes
in price. In a capital-poor country like Bangladesh, export and import can emerge as a
significant factor to build up physical capital, create employment opportunities, develop
productive capacity and help integrate the domestic economy with the global economy. For this
reality, the Author has undertaken to carry out the study. At present liberalization of trade is a
common phenomenon for most countries. Liberalization of trade policy significantly came into
being in Bangladesh from 1991. Whatever is the concentration for liberalization, all the
countries put extensive concern for gaining trade balance. In Bangladesh, the value of import
has always been greater than the value of export. For this reason the balance of trade is not
favorable of Bangladesh. This has resulted in sustained fall in the external value of our currency,
which means a steady increase in exchange rate over the whole period.
http://bv-f.org/WV-09/06.%20WV%20Final.-9.pdf

Defining the terms:

According to Prof. Winston:- "Economic Development shows the excess of consumption and
production of a country as compared with increase in population. This increase in population is
due to better combination and increase in the productivity of the factors of production".

In other words "Economic Development is a process whereby the people of a country utilize the
available resources in such a way that the per capita income of the country increases". The
increase in per capita and national income (NI) of a country
https://economicsconcepts.com/different_definitions_of_economic_development.htm

If poor countries grow faster than rich countries, over time they will catch up in terms of their
level of income. This process is called income convergence. Alternatively, incomes would
diverge if the rich countries grow more rapidly than poor countries. If economic growth is the
same everywhere, then the differences in income across countries would remain the same.

Physical capital. These are the machines, equipment, buildings, land, and other tangible inputs
into the production process. When companies invest in more equipment, this allows them to
expand production over time and to contribute to economic growth.

Productivity. Productivity is the amount of output produced with given labor and physical
capital. The question here is not how many people are working and what machines they use
but how well the labor and machines are put to use. Is the work organized well? In short, the
economy can expand if there are more people working, if they use more machines and
equipment, and if the people and machines are put to better use.
https://www.theglobaleconomy.com/guide/article/44/

Import Substitution A strategy that emphasizes the replacement of imports with domestically
produced goods, rather than the production of goods for export, to encourage the
development of domestic industry.
https://www.globalnegotiator.com/international-trade/dictionary/import-substitution/

Import substitution aims to generate employment, reduce foreign exchange demand, stimulate
innovation, and make the country self-reliant in critical areas such as food, defense, and
advanced technology. In developing countries import substitution involves a low degree of risk
as there are always large domestic markets for manufactured goods. The reason is that
protecting local industries against foreign competition is easier than forcing developed
countries to lift trade barriers against manufactured goods from developing countries.
https://definitions.uslegal.com/i/import-substitution/

Import substitution has been intended to rapidly industrialize and reduce dependence on costly
imported manufactured goods. To leverage this opportunity, diverse incentives are given starting from
the duty-free import of capital machinery, high import duty differential on the import of inputs and
finished products, to subsidized availability of utilities as well as infrastructure. In developing countries,
basically low skilled labor and limited raw materials are added to further process imported inputs with
imported capital machinery to produce outputs, as a substitute to import of finished products. But does
such a strategy succeed in creating net benefits? By pursuing this strategy, is it possible to develop
sustainable industrial economy? In retrospect, developing countries could not succeed in crafting a
sustainable growth path out of this strategy. Rather some countries like Argentina have become poorer.
Argentina has slipped from among top 10 richest countries in the 1930s to the 87th position-based on
per capita income, as reported by recent Heritage Foundation Research. Moreover, technological
progress has weakened the import substitution strategy further. Here are a few areas that can be
considered to assess cost-benefit analysis of import substitution strategy:

i) SOFTWARE-INTENSIVE TECHNOLOGY IS GETTING BETTER THUS SUBSTITUTING LABOUR: More

For example, almost 30 per cent cost of a mid-priced model of any smartphone brand in the market is
because of the phone's software content. The local labour requirement of building (basically, copying)
this software content in products is virtually zero. As a result, the labour-centric comparative advantage
of developing countries in support of import substitution has been eroding very rapidly

ECONOMIES OF SCALE AND SCOPE ADVANTAGE MAKE IMPORT SUBSTITUTION LESS ATTRACTIVE: Due to
the increasing role of software in capital machinery, and in some industrial products, the economies of
scale and scope have been rapidly increasing. As a result, low volume production for meeting domestic
demand only does not allow full exploitation of the scale and scope advantages. Additionally, the cost of
import substitution often exceeds the international cost levels.

(iii) LIMITS INNOVATION CAPACITY DEVELOPMENT: Import substitution strategy for leveraging low-cost
labour often discourages governments of developing countries to invest in technology development and
innovation. As technological development invariably kills jobs, developing countries shy away from
investing in research and development (R&D). Unfortunately, they fail to succeed to protect their
workforce in the long run as imported technology eventually kills job opportunities.

iv) INCREASES INEQUALITY:- Many developing countries are getting into mobile phone assembling as
they are targeting a large domestic market. Tax differentials such as 32 per cent on import of finished
handsets and 18 per cent on locally assembled ones are attractive enough to drive local assembling of
the mobile phone handsets. But, local value addition through labour in such an assembling process is
often less than five percent of the price of the handset. As a result, often the government's tax proceeds
to the hands of a few. Such a strategy has been one of the root causes of a disproportionate rise in the
segment of rich people in developing countries. This is leading to growing inequality in developing
countries.

https://thefinancialexpress.com.bd/views/views/technological-innovation-versus-import-substitution-
1549982597

Export Led Growth Strategy:- There are different ways in which one can interpret the concept of
Export Led Growth. Firstly, it implies that an increase in the rate of growth of exports leads to an
increase in the rate of growth of an economy (Krueger Anne, 1978). Secondly, it means that exports and
growth are interrelated in a circular and cumulative process and therefore exports can play a very
important role in the overall growth process (Verdoom, 1949). Thirdly, the empirical studies show that
there is a high correlation between export growth and economic growth which can be considered as
another interpretation of export led growth (Herberger, 2006). In the export led growth strategy,
exports and export policies are regarded as crucial growth stimulators. In the words o f Thirlwall: “the
growth of exports plays a major part in the growth process by stimulating demand and encouraging
savings and capital accumulation, and, because exports increase the supply potential of the economy, by
raising the capacity to import” (Thirlwall, 2000).
https://shodhganga.inflibnet.ac.in/bitstream/10603/174914/15/11_chapter%202.pdf

Trade is the key concept for the countries to grow. For example countries like Malaysia, China,
India and Brazil they all are got benefits from trade. The countries do export for comparative
advantage. For example Brazil is number one coffee production country and world main coffee
exporter as well. The trade is the only way to right use of economy’s resources by imports of
goods and service otherwise they have to sell at home with high resources cost.
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each country specializes based on their factor endowments. The result of these models is that
international trade is the way to achieve the international competitiveness and static
productivity. International trade enable to countries reduce the transportation cost, production
cost and reduce the labor cost in case of developing countries
https://www.ukessays.com/essays/economics/examine-the-export-led-growth-strategy-economics-
essay.php
Your argument on……………………..

But there is no denial that import substitution can be leveraged as an entry opportunity to global
industries. Through intelligently drawn up regulatory and ecosystem enrichment steps, producers can be
encouraged to focus on learning, knowledge accumulation, and innovation to keep increasing internal
capacity to drive up the quality and reduce the cost. In the process, the market of turning the mental
capacity of a growing number of university graduates into knowledge creation driving innovation
economy can be created. But, in retrospect, it was found that most of the developing countries failed to
leverage import substitution to develop globally competitive, sustainable industrial capacity and create
high-paying positions with focus on innovation. Instead of giving conventional incentives to acquire
replication capacity out of imported capital machinery, it's time that developing countries leveraged
import substitution as an opportunity to enter into innovation economy, as opposed to forcing citizens
to buy lower quality locally produced industrial products at higher prices.
https://thefinancialexpress.com.bd/views/views/technological-innovation-versus-import-substitution-
1549982597