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Structural Transformation in Rural Bangladesh: Is it Market Led?


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Binayak Sen, International Food Policy Research Institute (IFPRI) and Minhaj Mahmud, Bangladesh Institute of Development Studies (BIDS)

Presented at the ReSAKSS-Asia conference “Agriculture and Rural Transformation in Asia: Past Experiences and Future Opportunities”. An international conference jointly organized by ReSAKSS-Asia, IFPRI, TDRI, and TVSEP project of Leibniz Universit Hannover with support from USAID and Deutsche Forschungsgemeinschaft (DFG) at the Dusit Thani Hotel, Bangkok, Thailand December 12–14, 2017.

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Structural Transformation in Rural Bangladesh: Is it Market Led?

  1. 1. Structural Transformation in Rural Bangladesh: Is it Market-Led? Binayak Sen International Food Policy Research Institute (IFPRI) Minhaj Mahmud Bangladesh Institute of Development Studies (BIDS) Presentation made at the ReSAKSS-Asia Conference 12-14 December 2017, Bangkok
  2. 2. Introduction • For the last decade, Bangladesh has achieved sustainable economic growth of more than 5% per annum. According to the latest World Bank report, over 15 million Bangladeshis have moved out of poverty since 1992 (World Bank 2016). • Bangladesh will be on track to achieve target 1 of the SDGs (ending poverty by 2030) if it continues to grow at a pace comparable to that of the last decade(Mahmud et al 2018).
  3. 3. Motivation for Research • The development narrative has changed from the “Test case of Development” (Just Faaland and J. R. Parkinson 1975) to “Unexpected Success” (Naomi Hossain 2017). • Successes were many, at times variously labelled, expressed in the transition from LDC to Middle Income as well as successes in fighting poverty and achieving remarkable progress term of MDG targets .e.g. basic gender-sensitive education and health indicators (see, Sen, Mujeri and Shahabuddin 2007; Hossain, Sen and Sawada 2016, Mahmud et al. 2018 for a review). • The inter-sectoral transformation common to other Asian countries (Hossain, Sen and Sawada 2012; Otsuka 2007). • ‘Three country-specific mechanisms”: development of the ready-made garment industry, significant investments in infrastructure, penetration of MFIs and NGOs into rural communities (Mahmud et al 2018) • What role rural transformations played in the making of this success? • What has been the role of state vs. market in bringing about the observed rural transformations. Are Structural Transformations Market-Led? 3
  4. 4. Moving out of Agriculture Trends in value added Trends in Employment share Are Structural Transformations Market-Led? 4 Source: World Development Indicators, World Bank
  5. 5. Macro Context of Rural Transformations This section is based on Khan and Sen (2005) and Khan (2015) Are Structural Transformations Market-Led? 5
  6. 6. Trends in Growth Acceleration: Both Agricultural and Non-Agricultural Sectors Performed Well 0 1 2 3 4 5 6 7 8 9 1985-90 1990-1995 1995-2000 2000-2005 2005-2010 Average annual growth rates GDP Agriculture Manufacturing Are Structural Transformations Market-Led? 6
  7. 7. Agriculture’s share Declined, Manufacturing- led Industry’s Share Increased 0 10 20 30 40 50 60 1989/90 1999/2000 2009/10 2011/12 2012/13 Composition of GDP, 1989-2013 Agriculture Industry Services Are Structural Transformations Market-Led? 7
  8. 8. Salient features of Structural Change in GDP • Manufacturing’s share in GDP increased from 8.9% in 1989/90 to 15.5% in 2012/13, driven mainly by the growth of export-led readymade garments. • Agriculture’s share declined from 29.5% to 16.8% during 1989-2013, while crop sector’s share dropped from 19.3% to 9.5%. • Non-crop agriculture share has dropped at a much slower pace (from 10 to 7%) thanks to growth of the commercial poultry and aquaculture. • The export-GDP increased dramatically (now 20% of GDP) during this period, so did the flow of foreign remittances (now 11% of GDP), thus removing pressures on the balance-of-payment • GDP trends, however, cannot shed light on transformations in rural economy. Are Structural Transformations Market-Led? 8
  9. 9. Sectoral Shifts in Rural Personal Income 0 10 20 30 40 50 60 Agriculture Non-Agriculture Remittances Other Share of total rural income (%), 1991-2010 1991/92 2000 2010 Are Structural Transformations Market-Led? 9
  10. 10. Salient features from HIES Trends in Rural Income • Rising importance of the Non-farm Driver: The results from HIES between 1991/92 and 2010 confirm the declining share of farm income in total rural income (from 51% to 34%) and rising share of non-farm income (from 26 to 37%). • Increasing Role of International Migration: Remittance’s share in total rural income also increased during this period—from 11% to 16%. Income from foreign remittance--as a share of rural income--almost doubled, having gone up from 7% in 2000 to 13% in 2010. • All this in the context of decent growth in farm income: Declining share of farm income should not create the impression of agricultural stagnation. As we have witnessed before, agricultural growth actually accelerated in the 2000s compared to the 1990s. Are Structural Transformations Market-Led? 10
  11. 11. Drivers of Changes in Rural Economy This section is based on Sen, Mujeri and Shahabuddin (2007), Hossain and Bayes (2009), Hossain, Sen and Sawada (2016), Naomi Hossain (2017), and Minhaj Mahmud et al (2018) Are Structural Transformations Market-Led? 11
  12. 12. Happy Confluence of Economic Drivers • Role of Policies: Early difficulties (dislocation and famine in the 1970s, frequent natural disasters in the 1980s) led to strong policy emphasis on food production, population control and basic education, and reluctantly accepting the developmental role of NGOs. • Latent Demand for New Technology: These policy responses responded to the already existing “latent demand” of the Bangladeshi population formed under conditions of very high population density and food scarcity (Nurul Islam 1978, 2003; Boserup 1981; Dev, James and Sen 2002). • Adoption of Technology and the Development of Mechanized Service Market: This led to the early adoption of new HYV rice technology (as well as adoption of fertility control). In the recent decade, market for mechanized services such as irrigation, power tiller, and tractor/ thrasher has expanded very fast. Equity effects of these developments have been considerable (Hossain 1988; Hossain and Bayes 2009; Sen and Dorosh 2017). • The main point is that changes in the composition of rural income reflect a sea-change in the technological setting of the Bangladeshi villages compared to the 1970s, which was brought about by the private sector agents mediated by the market (the government played a supportive role in providing a liberalized trading environment) Are Structural Transformations Market-Led? 12
  13. 13. Relative Role of Within-Rural vs. Outside- Rural Drivers • In the 1980s and 1990s, most of the changes in the rural economy were brought about by within-rural sector changes such as the green revolution and microcredit (Sen, Mujeri and Shahabuddin 2007) • In the 2000s and 2010s, the role of outside-rural drivers became increasingly prominent. The latter include (a) urbanization and industrial development (offering domestic migration opportunities and salaried work), and (b) economic role of foreign remittances. • Not all the above effects are understood well. However, some broader remarks can be made. Are Structural Transformations Market-Led? 13
  14. 14. Substantive Changes in the Labor Market • Changes in the composition of rural income during 1991-2010 were due to the changes in the form of employment largely reflect underlying changes in the labor market. Three features are noteworthy. • Growing Importance of Salaried Work: With the spread of education (from the supply side) and the fast pace of growth in the non-agricultural sectors (from the demand side), we see a rise of salaried work in rural areas. The latter’s share in total rural income has doubled from 6% in 1991/92 to 12% in 2010. This is a new aspect of the labor market and non-farm development • Percent of non-farm labor in villages increased from 14.3 percent in 1988 to 22% in 2008(Mahmud et al 2017) • Traditional Non-Farm Self-Employment Retained Importance: Previously, rural non-farm development was mainly expressed in self-employment activities. The latter is still important, but its share in total rural income largely hovered around 16% over the 1990s and 2000s. • Importance of “contract labor” is rising in place of casual labor for farm work. The income from contract labor (on a hourly basis) is higher than that from casual labor. Its emergence as the main form of labor contract during the peak season is consistent with the widespread use of labor- saving techniques such as mechanized services. Are Structural Transformations Market-Led? 14
  15. 15. Substantive Changes in the Tenancy Market • During the period of 1991 and 2010, when the agricultural growth has accelerated, we have seen not only the above changes in the labor market, but also marked changes in the tenancy market (Hossain and Bayes 2009; Sen 2017). • The share of land under tenancy has almost doubled between 1988 and 2008; about 57% of the rented in land are now cultivated under the more efficient fixed rental system; and there has been a noticeable rise in the share of landless tenancy (pure tenancy) • These changes in the contractual arrangements in labor and tenancy markets brought about by changing economic conditions have been pro-poor in nature Are Structural Transformations Market-Led? 15
  16. 16. Experience with Rural Mechanization • Farm mechanization got a boost since 1988 with number of Tractors, Power tillers, threshers, DTW, STW , being increased many fold over the next decades(Hossain et al 2013) • The number of STWs for irrigation increased 6 times during 1989-2014 • The number of power tillers increased 30 times and power threshers 12 times within 1996- 2006 with continuous growth in their use till 2012 • Over the same period real wage for male(female) worker grew annually 2.6%(3.5); at a faster rate than rice price increase • Privatization of irrigation contributed to rapid expansion of rice cultivation; DTW saw 4% growth in 2000s and STW 8%( during the 90s STW irrigation jumped 20% annually(Mandal 2017) • Liberalization, private import, private sector investment, local entrepreneurship • Survey shows these investments turn to be very profitable for private rural entrepreneurs ( Hossain et al 2017) • Machinery rental market promoted access to mechanization for small and marginal farmers
  17. 17. Market-Led Rural Structural Transformations Concluding Remarks Are Structural Transformations Market-Led? 17
  18. 18. Pro-Active Market… • Rural structural transformations in Bangladesh have been expressed in three aspects: (a) changes in the rural output composition that favor non- agricultural sectors without depressing the growth of the agricultural sector; (b) changes in the rural technological environment that favor productivity enhancing growth through the adoption of new agricultural technologies through the active use of mechanized service market; (c) changes in the rural labor (and tenancy) markets that support such transformation of output and technology adoption. • These transformations in output, technology and forms of employment have been brought about initially by within-rural sector imperatives, but later by outside-rural opportunities driven by urbanization and industrialization. Could these changes be brought about without the consent of the state? Are Structural Transformations Market-Led? 18
  19. 19. …and Adaptive State • While the above structural transformations have been brought about by people’s responses to changing market conditions and incentives, and in that sense, they may be viewed as “market induced changes” under population pressure and expanding non-rural opportunities, the state’s role was not inconsequential. • The state has been largely supportive of these “silent transformations” of the countryside in following the footsteps of the market. It created liberalized trading environment for imports of agricultural technologies, it invested in rural roads and regional connectivity, and it provided the infrastructure of basic education and preventive health along with minimum law and order required for conducting private business. • After all, the state was an indirect beneficiary of the rural structural transformations where majority of voters live. It derived legitimacy (political rents) from showcasing the economic progress, though it did not initiate these changes. The Bangladeshis state may be in the category of “weak state” (as opposed to East Asian states) but it is also a “perceptive state”--sensitive and reactive about changes that are happening on the ground. Are Structural Transformations Market-Led? 19
  20. 20. Discussion: Policy Challenges • The important policy issue is to stimulate non-farm activities in rural areas focusing on the distinction between formal and informal employment sector and employment and market integration • Rural transformation may face challenges not within agriculture • Industrialization, Urbanization and Governance Challenges