Economic Conditions

Of
Bangladesh during 1972-2018

Economic Conditions Analysis

BUS 530

Submitted To:

Submitted By:

North South University

Table of Contents
Chapter-01: Introduction ...........................................................................3
Objectives of the Research ..........................................................................3
Methodology ................................................................................................4
Chapter-2: Economic Conditions of Bangladesh ...................................5
Chapter-3: Real GDP....................................................................................5
Trend Analysis of Real GDP ........................................................................5
Cyclical Components of Real GDP ..............................................................6
Chapter-4: Consumption.............................................................................7
Trend Analysis of Consumption....................................................................7
Cyclical Components of Consumption..........................................................8
Chapter-5: Government Expenditure........................................................8
Trend Analysis of Government Expenditure................................................9
Cyclical Components of Government Expenditure....................................10
Chapter-6:Investment................................................................................11
Trend Analysis of Investment.....................................................................11
Cyclical Components of Investment ..........................................................12
Chapter-7 Imports of Goods & Services ................................................12
Trend Analysis of Imports
…………………………………………………………………………………..13

Cyclical Components of Imports

…………………………………………………………………….……..14

Chapter-8: Exports of Goods & Services ................................................15

Trend Analysis of Exports
………………………………………………………………………..……….15

Cyclical Components of Exports ...............................................................16

Chapter-9: Regression Analysis...............................................................17
Recommendations
……………………………………………………………………………………………….19

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Conclusion
……………………………………………………………………………………………….
………..20

References

1. Introduction:

Bangladesh got the independence from East Pakistan in 1971 after a long war that lasted 9

months. 1971 freedom war carried a great deal of progress to Bangladeshi financial matters.

Bangladesh is plagued with issues acquired from long stretches of underdevelopment and

disregard in past. The principle part of pay agribusiness is dependent upon unsure execution and

whimsical variances. In any case, the economy of Bangladesh has advanced, all things

considered, as years passed by. Bangladesh has a population around 16 crore now and its

monetary development is around 6.9%.

In the decade since 2004, Bangladesh arrived at the midpoint of a GDP development of 6.5%

that has been to a great extent driven by its fares of instant articles of clothing, settlements and

the household horticultural division. In 2016 Bangladesh accomplished a momentous financial

development of 7.1%. Across the board destitution, overpopulation and poor administration are

among Bangladesh's advancement challenges. The foundation can't stay up with the monetary

development, debasement is across the board and Bangladesh is experiencing the impacts of

environmental change. GDP growth, Consumption, Government expenditure, Investment,

Imports & Exports of Goods & Services, all these calculations can determine the economical

conditions of Bangladesh since its Independence

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1.1 Objective of the Research:

The purpose of this project is to determine the economic conditions of Bangladesh during the

time period of 1972 to 2018. The objectives of our research project are as follows:

 Generating data to understand the trend, cyclical movements and growth rate movements

of real GDP, consumption, investments, government expenditures and net export for

Bangladesh for the reference period of 1972-2018

 To calculate and determine the year to year growth rates of each of real GDP,

consumption, investments, government expenditures and net export

 Analyse and report how business cycles (cyclical component of real GDP) are related to

the cyclical components of the other variables. Also, to analyse and report how economic

growth rate is related to growth rates of consumption, investment, government

expenditure and net export.

1.2 Methodology:

We collected our necessary economic data for completing analysis of our research in Bangladesh

for the reference period 1972-2018 from Data Bank, World Development Indicators website.

The data we collected for computing real GDP, consumption, investment, government

expenditures, and net export for Bangladesh was used to calculate year to year growth rate of

each variables. The calculated data was also used to find the trend using Hedrick-Prescott (HP)

filter in excels and the cyclical component of each of the variable was prepared using the below

formula:

In (X/XT)
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Here X is calculated for real GDP, consumption, investment, government expenditures, and net

export and XT is the trend of consumption, investment, government expenditures, and net export.

For analyzing the relationships between real GDP, consumption, investment, government

expenditures, and net export, a Regression Analysis was used in Microsoft excel where real GDP

was used as the dependent variable and consumption, investment, government expenditures and

net export as independent variable.

2. Economic Conditions of Bangladesh:

To analyze the economic conditions of Bangladesh the data on real GDP, consumption,

investment, government expenditures, export and import have been collected from the WB

websites for the reference period (1972-2018). The actual data accompanied by the trend and the

business cycle are expected to help understanding the economic conditions of Bangladesh during

the reference period.

3. Real GDP:

Real GDP is the nominal GDP adjusted with inflation, which is basically final goods and

services produced in a country within a year adjusted with the price changes in the economy.

3.1 Trend analysis of Real GDP:

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 GDP- Trend
70000
60000
50000
40000
30000
20000
10000
0
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
19
19

19
19

19
19

20
20

20
20

20
19
19

19
19

19
19

19
19

20
20

20
20

20
GDP HP Trend

Here, blue line represents the real GDP and the maroon line represents the HP Trend which is

measured for the years 1972-2018. During the initial years we can see the curves are flat which

started to rise during 1998 and still rising till 2018. This graph represents that the Real GDP of

the country is rising.

3.2 Cyclical Component of Real GDP:

We used HP filter for finding out the business cyclical component. Here we can see the business

cycle from 1972 to 2018. From the graph we can understand that there had been some downward

fluctuations around year 1975, 1989 and 2004. But after that from year 2014 there had been a

positive change in the economy. During the 80s, the main factor helped the rise in the economy

is the introduction of garment segment in the economy. If we want to sustain the rise in the

economy we have to ensure political stability and laws which will benefit the businesses. Also

we need to find other sources along with RMG sector as there would be blow in the segment

because of the Corona Epidemic.

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 Business Cycle
6.00%
5.00%
4.00%
3.00%
Cycle
2.00%
1.00%
0.00%
-1.00%972 974 976 978 980 982 984 986 988 990 992 994 996 998 000 002 004 006 008 010 012 014 016 018
1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2
-2.00%
-3.00%

4. Consumption:

Consumption is denoted by C. It is one of the core components of real GDP. It plays an important

role regarding the economic growth rate of any country.

4.1 Trend analysis of Cosumption:

In the below graph, the consumption and the trend of consumption of Bangladesh have been

calculated for the period 1972 to 2018. From the figure above, we can observe that overall

consumption of Bangladesh has increased and on average it started to increase huge from 1996

to 2018.However, at the beginning of 80s’ the growth of consumption is very slow.

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 Consumer vs Trend

8,000,000,000,000.00
7,000,000,000,000.00
6,000,000,000,000.00
5,000,000,000,000.00
4,000,000,000,000.00
3,000,000,000,000.00
2,000,000,000,000.00
1,000,000,000,000.00
-
1972 1976 HP Trend
1980 1984
1988 1992 Consumption
1996 2000
2004 2008
2012 2016

Consumption HP Trend

Since consumption plays an important role in economic growth in any country or in increasing

real GDP of any country, so the faster growth rate of consumption is positive for any country.

The reason behind the slow growth of consumption beginning 80s’ is that time the economy

totally dependent on Agriculture. When our county started to expand business on garments sector

as well as industrial sector, it has started to bring huge improvement in the economy.

4.2 Cyclical Component of Consumption:

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 Cyclical Component
0.1500

0.1000

0.0500

-
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20
(0.0500)

(0.1000)

(0.1500)

This figure is showing the business cycle of consumption from 1972 to 2018. We can see that

there are huge deviations of consumption. In 1980, 1995 and 2007 the consumption also reached

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at the high level of peak. On the other hand, in 1982 and in 2003 the consumption reached at

lowest level.

5. Government Expenditure:

Government expenditure or spending relates to all government consumption, government

acquisitions of goods & services for providing benefits in future to the nation or public

investment and transfer payments. It is denoted by G.

5.1 Trend analysis of government expenditure:

Govt. Expenditure vs Trend

1,200,000,000,000.00

1,000,000,000,000.00

800,000,000,000.00

600,000,000,000.00

400,000,000,000.00

200,000,000,000.00

-
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20

Govt. Expenditure HP Trend

From the above figure, we can see that from 1980 to 1990 there is a little growth in government

expenditure. After 90’s there started a change government expenditure which indicates that

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Government became concerned about economic development. After 2010 there is a massive

growth in government expenditure.

5.2 Cyclical Component of government expenditure:

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 Cyclical Component
0.40000

0.30000

0.20000

0.10000

-
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20
(0.10000)

(0.20000)

(0.30000)

(0.40000)

(0.50000)

The cyclical graph of government expenditure indicates that there is a huge up and down in the

cycle. It expresses a massive fall in the early 80’s, early 90’s and in 2000. It shows that the

economy went through recessionary gap different period. To get rid of from recessionary gap the

government started to expand more under expansionary fiscal policy to reduce unemployed rate.

Same situation took place in 2006 for recovering the economy from recessionary gap.

6. Investment:

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Investment means the purchase of goods per unit of time which are not consumed at present

time. Investment may be private or public investment. It is denoted by I.

6.1 Trend analysis of Investment:

Investment vs Trend

450,000,000,000.00
400,000,000,000.00
350,000,000,000.00
300,000,000,000.00
250,000,000,000.00
200,000,000,000.00
150,000,000,000.00
100,000,000,000.00
50,000,000,000.00
-
2001 HP Trend
2003 2005 2007 2009 Investment
2011 2013 2015
Investment HP Trend

From the above scenario, investment expenditure rise steadily from 2001 to 2016. The

investment is one of the components of aggregate demand which eventually effects the economic

growth. Here the comparison of investment expenditure and trend is insignificant.

6.2 Cyclical Components of Investment:

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 Cyclical Component
0.60000

0.50000

0.40000

0.30000

0.20000

0.10000

-
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
(0.10000)

(0.20000)

(0.30000)

(0.40000)

The graphical representation of cyclical component of investment expenditure is shown above.

This graph illustrates that there is a fluctuation of recessionary and inflationary gap over the

2001 to 2016 time period. In 2004 there is dropdown and later rise again in 2014. This

fluctuation might be because of changes in political leader during the time period.

7. Imports of goods and service:

Imports are foreign goods and services that are bought by residents of a country (citizens,

businesses, and the government). They can be shipped or can be sent by email or it can be even

hand-carried in personal luggage on a plane.

7.1 Trend analysis of Import:

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 Import vs Trend
4,500,000,000,000.00
4,000,000,000,000.00
3,500,000,000,000.00
3,000,000,000,000.00
2,500,000,000,000.00
2,000,000,000,000.00
1,500,000,000,000.00
1,000,000,000,000.00
500,000,000,000.00
-
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20

Import HP Trend

In the above figure it has been shown total import & trend of import of Bangladesh from 1972 to

2018.After analyzing the graph, from 1976 to 2002, Import was align to trend in an increasing

manner. But in 2002, import was leg behind of trend & around in 2005 it crosses trend till 2009.

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7.2 Cyclical components of Import:

Cyclical Component
0.80000

0.60000

0.40000

0.20000

-
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20
(0.20000)

(0.40000)

(0.60000)

Import drastically falls in 1980 to 1981, somehow country was been suffered by political reasons

that created undefined situation for setting us new industries as well as natural disaster(drought)

was also a reason to fall GDP. So, people did not feel to make investment, so demand fall &

induced negative growth makes import down for capital machinery.

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8. Exports of goods and service:

One country produces Products domestically and those products are bought by another country

termed as exports. Selling a product in a foreign market creates competitive advantage of an

economy. Export payment is done either by own currency of a country or by U.S dollar.

8.1 Trend analysis of Export:

Export vs Trend

1,800,000,000,000.00
1,600,000,000,000.00
1,400,000,000,000.00
1,200,000,000,000.00
1,000,000,000,000.00
800,000,000,000.00
600,000,000,000.00
400,000,000,000.00
200,000,000,000.00
-
1972 1976 HP Trend
1980 1984
1988 1992
1996 2000 Export
2004 2008
2012 2016

Export HP Trend

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It has been shown total export & trend of export of Bangladesh from 1972 to 2018.After

analyzing the graph, from 1972 to 2000, export was aligning to trend in an increasing manner.

But in 2002, export was leg behind of trend & around in 2005 it crosses trend till 2009.

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8.2 Cyclical component of Export:

Cyclical Component
0.40000

0.30000

0.20000

0.10000

-
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20
(0.10000)

(0.20000)

(0.30000)

(0.40000)

(0.50000)

The figure is showing cycle of Bangladesh from 1972 to 2018. Graph is showing many

fluctuations over the period. Expansions, peaks, contractions and troughs are also visible in

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graph. From 1980 to 1982, it was drastically fall & afterwards it kept increasing in a fluctuations

manner.

In 1980 cyclical component of export was fall due to lack of restriction & biasness of anti-

export. That time trade policy was very protective that made import lower. It gained consumer

welfare in 1990 when overall economy of export became durable for trade liberalization by

increasing inexpensive & higher quality trade in raw materials. Afterwards export was becoming

higher than imported cost. During 1980-2003 growth rate of export was not that much sufficient

around 0.100 to 0.200.

9. Regression Analyses:

Regression analysis is one of the powerful statistical methods to identify the relationship of two

or more variable of interest. Basically in the core it analyzes how one or more independent

variable put their impacts on dependent variable.

To analyze how business cycle (Cyclical component of real GDP) is related to the cyclical

components of the other variables we imply multivariate regression to identify.

Data Description:

The variables used in multivariate regression analysis are described below:

SL. Variable Type Name Explanation

1 Dependent Real GDP Cyclical component of “RGDP”

2 Consumption Cyclical component of “C”

Independent
3 Investment Cyclical component of “I”

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4 Govt. Expenditure Cyclical component of “G”

5 Export Cyclical component of “X”

6 Import Cyclical component of “M”

Interpretation of the analyses:

Coefficient of determination (R2):

R2 implies that approximately 25.81% changes in the business cycle can be explained by the

change in consumption, government spending, investment, export and import.

Multivariate linear regression equation:

Business cycle = .000152724 + .326347282 Consumption - .00985136 Investment – .

007335789 Govt. Expenditure + (.017983294 Export – .050951773 Import)

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 This equation represents when there is no consumption, investment, Govt. expenditure,

export & import at that time the business cycle is .000152724.

 These analyse shows that only consumption & import has statistical significance because

it has p value lower than .5.

 The equation also implies consumption is the most significant factor as it has the highest t

value.

Recommendations

1. Bangladesh needs crisis execution of auxiliary changes. Improvement of framework just

as the business atmosphere will assist new beneficial areas with improvement and

produce more opening for work.

2. Processed food, pharmaceutical items, ceramics, and home equipment exporting along

with RMG sector should be boosted.

3. To making better occupations for the adolescents entering the activity advertise each year

Government ought to accentuate more. It must be done through expelling the

impediments to higher development presented by low access to solid and reasonable

force, dismissed transportation framework, deficient accessibility of adjusted land,

complex business guideline, and so on.

4. Transportation infrastructure need to be highly improved as it runs the economy’s wheel.

Chronic traffic congestions, frequent clogging of highways, inappropriate road and

bridges planning shows the poor infrastructure of our country.

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 5. The private division ought to be given unrestricted supremacy. Since monetary

advancement is unimaginable without the inventiveness of the private division.

6. Easy access to education & training ought to be increasingly accessible to rural

population and literacy rate ought to be improved, as without improving the literacy rate,

there can't be any improvement in producing specialized or technical expertise.

Conclusion

In the end, we can see the economic condition based on research of international monetary fund,

in 2010 Bangladesh is the 43th largest economy considering PPP terms & 57 th largest considering

nominal terms. Until FY 2007-2008 economic growth acceleration, progressively declining of

budget deficit, high rate of exports and import growth, balanced rise of foreign currency reserve

showed significant milestones to set policies for attaining macroeconomic stability. In 1972,

obstacles and challenges we faced, was impossible to solve but positive changes in the

development areas provided the final outcome that could be greater than single changes in the

political, economic and social landscape of Bangladesh.

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Reference

1. http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators

2. https://web-reg.de/webreg-hodrick-prescott-filter/

3. http://cameron.econ.ucdavis.edu/excel/ex61multipleregression.html

4. https://en.wikipedia.org/wiki/Economy_of_Bangladesh

5. https://www.heritage.org/index/country/bangladesh?version=411

6. https://www.nordeatrade.com/en/explore-new-market/bangladesh/economical-context

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