This an integrated analysis on the macroeconomic aspects of Bangladesh with a focus on GDP, unemployment, inflation. The analysis conducted with the historical data of the year 1996 to 2015 collected from World Development Indicator of the World Bank.

1. MACROECONOMIC CONDITION OF BANGLADESH:
AN OVERVIEW OF THE YEAR 1996-2015

2. Prepared for:
Mahabuba Lima
Asst. Professor, Department of Finance
University of Dhaka
Prepared by:
Group 4
Date of Submission- November 24, 2016
Member’s Name ID No. Remarks
Suborna Ghosh 21-06
Saiful Islam 21-39
Md. Istiaq Hasan 21-99
Hadia Jahin 21-189
Taj-E-Nur 21-225
A TERM PAPER ON
MACROECONOMIC CONDITION OF BANGLADESH:
AN OVERVIEW OF THE YEAR 1996-2015
a

3. ii
Letter of Transmittal
November 24, 2016
Mahabuba Lima
Assistant Professor,
Department of Finance,
University of Dhaka
Subject: Submission of the term paper on “Macroeconomic Condition of Bangladesh: An
Overview of the Year 1996-2015”.
Dear Madam,
It is an honor and immense pleasure for us to present our report on on “Macroeconomic Condition
of Bangladesh: An Overview of the Year 1996-2015.” This report was assigned to our group as
a partial requirement of the course named “F-208: Macroeconomics” of B.B.A program under the
department of Finance of the Faculty of Business Studies, University of Dhaka. This study has
given the opportunity to gain knowledge about the implications of macroeconomic theories and
factors and their significance in our country’s economy. The knowledge we have gathered through
this study will help us in our real life and in future carrier, indeed.
We would like to convey our special thanks and gratitude to you for patronizing our effort & for
giving us proper guidance and valuable advice throughout the semester. We earnestly request you
to call us if you think any further work should be done on the topic.
Sincerely,
Saiful Islam
On behalf of the Group-4
21st
Batch, Department of Finance
University of Dhaka

4. iii
Table of Contents
Contents……………………………................................................................................................iii
Executive Summary…………………………………………….……………………....................iv
Acknowledgement…………..……………………………………………………………………..v
Chapter Topics Page
1 Introduction: 1-4
Introduction 2
Origin of the report 3
Objective of the report 3
Methodology 4
Limitation 4
2 Gross Domestic Product (GDP) 5-13
GDP in Bangladesh 8
GDP Per Capita 10
GDP Growth 11
Criticism and Superiority of GDP 12
3 Unemployment 14-17
4 Inflation 18-22
5 Relationships of GDP, Unemployment, Inflation 23-25
Conclusion 26
Bibliography 27

5. iv
Executive Summary
We were assigned to study and prepare a report on the “Macroeconomic Condition of Bangladesh”.
We used the data of the year 1996-2000 collected from World Development Indicators data bank
of the World Bank. In the introductory part, we briefly described objective, methodology and
limitations of preparing this report.
After mentioning the theoretical part in each chapter, we described their significance in the
economy of Bangladesh. Firstly, we discussed the GDP, GDP per capita, GDP growth in
Bangladesh. Then we covered unemployment and inflation rate in Bangladesh during the year
1996-2015. We, in this report, adjusted relevant graphs and charts and went through a brief
description of them. Finally, we tried to show some relationship among the indicators we discussed.

6. v
Acknowledgement
At first we would like to thank the mightiest and our parents. Without their blessing, we could not
be successful in completing the study. We would like to thank our honorable course teacher and
Assistant Professor of Department of Finance, Mahabuba Lima for providing us such an
opportunity to prepare the report on “Macroeconomic Condition of Bangladesh: An Overview of the
Year 1996-2015”. Without her helpful guidance, the completion of this report was unthinkable.
During our preparation of the report work, we have come to very supportive touch of different
individuals & friends and professionals who lent their ideas, time & caring guidance to amplify the
report’s contents. We want to convey our heartiest gratitude to them for their valuable responses.

7. 1
Chapter-1
Introduction

8. 2
Introduction
GDP (Consumption, investment, government expenditure, net export), inflation rate,
unemployment rate are the development indicators for an economy. These indicators are showing
that Bangladesh is doing well day by day. According to Bangladesh Statistics Bureau, GDP growth
is provisionally estimated at 7.05 percent in FY 2015-16, slightly up from 6.55 percent in FY 2014-
15. The per capita national income reached US$ 1,466 in FY 2015-16, up by US$ 150 comparing
the previous fiscal year. Inflation gradually came down and on point-to-point basis, inflation in
April 2016 slid down to 5.61 percent from 6.36 percent in June 2015. From the last known data
from World Bank, the unemployment rate in Bangladesh decreases to 4.3 percent in 2014 from 4.5
percent in 2014. Effective coordination between fiscal and monetary policy helped to maintain the
macroeconomic stability.

9. 3
Origin of the Report
The report is prepared for the requirement of course “F-208: Macroeconomics” under the academic
supervision of our course teacher, Mahabuba Lima, Assistant Professor, Department of Finance,
University of Dhaka. The topic we worked with is “Macroeconomic Condition of Bangladesh: An
Overview of the Year 1996-2015”. While preparing the report, we gave our best effort collecting
data about insurance industry of Bangladesh. For the purpose of preparing this report we have
collected data from World Development Indicator of the World Bank.
Objective of the Report
The main objective of this report is to understand and show the macroeconomic factors; e.g. GDP,
inflation, unemployment etc. and their significance in Bangladesh.
Primary Objective:
 The primary objective of the report is the completion of our course “F-208:
Macroeconomics” and to submit the term paper to complete our course.
Specific Objectives:
 Clear understanding on the theoretical concepts of Macroeconomics.
 Relating theoretical concept with real life data.
 Understanding the implementation and significance of macroeconomic factors and theories
in Bangladesh.

10. 4
Methodology
The methodology of this report is collective and the report was prepared through a lengthy process.
The process of preparing the report is given bellow:
 At first we, the members of Group-4, held a discussion about the process we should follow
to prepare the report and decided to collect secondary data.
 Then we have divided the topics to cover in this report among our group members.
 Then we collected secondary data from our recommended course curriculum conducted by
our course teacher Mahabuba Lima.
 We also collected most of the data from the World Development Indicators data bank of
the World Bank
 Then we summarized collected data and showed necessary analysis.
 We checked formatting of the report and checked for mistakes for several times and at last,
we succeeded to prepare the report.
Limitations
While preparing this report, we have faced some problems. The main problem was to co-ordination
all the group members. Moreover, during data collection we faced several problems.
Budgeted time limitation
It was one of the main constraints that hindered to cover all aspects of the study.
Lack of Knowledge
Lack of thorough knowledge on the macroeconomic theories lead as to some difficulties while
preparing this report.
In spite of many limitations, we have become successful in preparing the report with sufficient
adornment of flawlessness.

11. 5
Chapter-2
Gross Domestic Product (GDP)

12. 6
GDP (Gross Domestic Product)
Gross domestic product (GDP) is a monetary measure of the market value of all final goods and services
produced in a period. It measures the overall economic performance of an economy. It is measured
frequently, widely, and consistently as an indicator of economic development and standard of living.
GDP can be calculated from 2 different approaches. They are:
 Product Approach
 Earning Approach
Components of the approaches given below:
Product Approach Earning Approach
Consumption (C) Compensation of Labor (wages, salaries etc.)
+ Gross Private Domestic Investment (I) + Corporate Profit
+ Government Purchases (G) + Other Property Income (rent, interest etc.)
+ Net Exports(X) + Depreciation
+ Net Production
Equals: Gross domestic product Equals: Gross domestic product
Components of GDP
GDP (Y) is the sum of consumption (C), investment (I), government spending (G) and net exports
(X – M).
Y = C + I + G + (X − M)
Here is a description of each GDP component:
 C (consumption) is normally the largest GDP component in the economy, consisting of
private expenditures in the economy (household final consumption expenditure). These
personal expenditures fall under one of the following categories: durable goods, nondurable

13. 7
goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses
but do not include the purchase of new housing.
 I (investment) includes, for instance, business investment in equipment, but does not
include exchanges of existing assets. Examples include construction of a new mine,
purchase of software, or purchase of machinery and equipment for a factory. Spending by
households (not government) on new houses is also included in investment. In contrast to
its colloquial meaning, "investment" in GDP does not mean purchases of financial products.
Buying financial products is classed as 'saving', as opposed to investment. This avoids
double-counting: if one buys shares in a company, and the company uses the money
received to buy plant, equipment, etc., the amount will be counted toward GDP when the
company spends the money on those things; to also count it when one gives it to the
company would be to count two times an amount that only corresponds to one group of
products. Buying bonds or stocks is a swapping of deeds, a transfer of claims on future
production, not directly an expenditure on products.
 G (government spending) is the sum of government expenditures on final goods and
services. It includes salaries of public servants, purchases of weapons for the military and
any investment expenditure by a government. It does not include any transfer payments,
such as social security or unemployment benefits.
 X (exports) represents gross exports. GDP captures the amount a country produces,
including goods and services produced for other nations' consumption, therefore exports
are added.
 M (imports) represents gross imports. Imports are subtracted since imported goods will be
included in the terms G, I, or C, and must be deducted to avoid counting foreign supply as
domestic.
Note that C, G, and I are expenditures on final goods and services; expenditures on intermediate
goods and services do not count. (Intermediate goods and services are those used by businesses to
produce other goods and services within the accounting year.

14. 8
GDP in Bangladesh
To show the condition of Bangladesh regarding GDP, last twenty years data are gather from World
Bank Website. Graphs based on the collected data are given below:
Graph-1
Source: WDI, World Bank
Figure: The figure is showing Bangladesh’s Gross Domestic Product (GDP) in terms of current
US Dollars. At the very begging of the graph, in 1996, her GDP was 46438482370. And then the
graph follows an increasing or upward trend indicating that the amount of GDP has increased over
the years. The GDP of Bangladesh was 53369787318, 69442943089, 115279077465, and
195078665827 in 2000, 2005, 2010, and 2015 respectively.
0
5E+10
1E+11
1.5E+11
2E+11
2.5E+11
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP(Current USD)

15. 9
Graph-2
Source: WDI, World Bank
Figure: This is the graph of Bangladesh’s GDP in terms constant local currency unit where GDP
was 2913742000000, and 8248624000000 in 1996 and 2015 respectively.
Graph-3
Source: WDI, World Bank
Figure: This is the graph of Bangladesh’s GDP in terms current local currency unit where GDP
was 1899334000000, and 15158022000000 in 1996 and 2015 respectively.
0
2E+12
4E+12
6E+12
8E+12
1E+13
1.2E+13
1.4E+13
1.6E+13
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP (Current LCU)
0
1E+12
2E+12
3E+12
4E+12
5E+12
6E+12
7E+12
8E+12
9E+12
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP (Constant LCU)

16. 10
Graph-4
Source: WDI, World Bank
Figure: The graph is showing GDP Per Capita of Bangladesh in terms of current US Dollars. This
graph is showing that GDP Per Capita is increasing day by day. Here, GDP per capita was 383.8
in 1996 which increased to 1211.7 over 20 years. Thus, Per Capita GDP was 406.5, 485.85, 760,
and 1211.7 in 2000, 2005, 2010, and 2015 respectively.
Graph-5
Source: WDI, World Bank
0
200
400
600
800
1000
1200
1400
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP Per Capita (Current USD)
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP Per Capita (Current LCU)

17. 11
Figure: This is the graph of Bangladesh’s GDP Per Capita in terms current local currency unit
where GDP Per Capita was 15698, and 94151 in 1996 and 2015 respectively
Graph-6
Source: WDI, World Bank
Figure: This is the graph of Bangladesh’s GDP Per Capita in terms constant local currency unit
where GDP Per Capita was 24083, and 51235 in 1996 and 2015 respectively.
Graph-7
Source: WDI, World Bank
0
10000
20000
30000
40000
50000
60000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP Per Capita (Constant LCU)
0
1
2
3
4
5
6
7
8
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP Growth

18. 12
Figure: This graph is of GDP Growth in Bangladesh. The graph is showing a fluctuating nature.
There are ups and downs. In 1996, GDP Growth rate was 4.5%. The GDP Growth of Bangladesh
was 5.29, 6.5, 5.5, and 6.55 percent in 2000, 2005, 2010, and 2015 respectively.
Graph-8
Source: WDI, World Bank
Figure: The graph is based on GDP Per Capita Growth in Bangladesh. At the begging the GDP
Per Capita Growth was 2.3%. In 2015, it rises to 5.2%. However, GDP Per Capita Growth was
3.2, 4.9, and 4.3 in 2000, 2005, and 2010 respectively
0
1
2
3
4
5
6
7
GDP per capita growth (annual %)
GDP Per Capita Growth (Annual %)

19. 13
Graph-9
Source: WDI, World Bank
Figure: This is the graph of GDP Deflator in Bangladesh. GDP Deflator was 65 in 1996. And then,
GDP Deflator followed an upward trend. However, GDP Deflator was 76, 94, 131, and 183 in
2000, 2005, 2010, and 2015 respectively.
Criticisms of GDP: Although a high or rising level of GDP is often associated with increased economic
and social progress within a country, a number of scholars have pointed out that this does not necessarily
play out in many instances.
 GDP growth does not necessarily lead to a higher standard of living, particularly in areas such as
healthcare and education.
 GDP excludes activities that are not provided through the market, such as household production and
volunteer or unpaid services.
 GDP does not account for the distribution of income among the residents of a country, because GDP
is merely an aggregate measure. An economy may be highly developed or growing rapidly, but also
contain a wide gap between the rich and the poor in a society.
 There are no subtractions for the costs of environmental pollution or degradation.
 It is difficult to account correctly for the improvements in the quality of goods.
Superiority of GDP: In practice its limitations do not draw so much concentration. Some reasons
for this superiority of GDP are:
0
20
40
60
80
100
120
140
160
180
200
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP Deflator

20. 14
 GDP is an important indicator of economy because the more value a country produces; the
better will be compensation for employees to meet business demands.
 It measures economics growth based on production and consumption of goods and services.
It is a measurement of final goods and services of financially made question by quarter
through a full calendar.
 The importance of GDP becomes apparent upon considering the major economic
barometers that heavily influence the pace of growth/contraction in a country. Jobs are one
of the factors and when unemployment is notably high. This is likely to be evident through
shrinking GDP.
 A company’s GDP is also viewed in the light of the corporate profit and being produce in
the country. When GDP is slow, investors are likely to be worry of placing capital into the
financial market. Conversely, when GDP is increasing and profits are growing, the
investment condition appears more promising.

21. 15
Chapter-3
Unemployment

22. 16
Unemployment
The state of being without any work both for educated & uneducated person for earning one's
livelihood is meant by unemployment. Economists distinguish between various overlapping types
of and theories of unemployment, including cyclical or Keynesian unemployment, frictional
unemployment, structural unemployment and classical unemployment.
Unemployment includes voluntary and involuntary unemployment.
Voluntary unemployment is attributed to the individual's decisions. Voluntary unemployment
includes workers who reject low wage jobs whereas involuntary unemployment includes workers
fired due to an economic crisis, industrial decline, company bankruptcy, or organizational
restructuring.
 Fictional Unemployment: It reflects individual search behavior.
Due to family responsibility, leisure, job structure someone may decide to remain voluntarily
unemployed.
Involuntary unemployment exists because of the socio-economic environment (including the
market structure, government intervention, and the level of aggregate demand) in which individuals
operate.
 Cyclical unemployment: The clearest cases of involuntary unemployment are those where
there are fewer job vacancies than unemployed workers even when wages are allowed to
adjust, so that even if all vacancies were to be filled, some unemployed workers would still
remain. This happens with cyclical unemployment, as macroeconomic forces cause
microeconomic unemployment which can boomerang back and exacerbate these
macroeconomic forces.
 Structural unemployment: The existence of structural unemployment may reflect choices
made by the unemployed in the past. Basically it’s a mismatch of requirement.
 Seasonal unemployment: Seasonal unemployment occurs when there is limited need for
a specific type of work to be performed during a certain time of the year. Professionals who
work in a specific season often charge fees for their services, which provide the equivalent
of an annual income, or work in multiple fields with different prime seasons.

23. 17
Graph-10
Source: WDI, World Bank
Figure: The graph is showing unemployment rate of Bangladesh. In 1996, unemployment rate
of total labor force was 2.5%. Unemployment rate was 3.3, 4.3, 4.3, 5, and 4.5 percent in 2000,
2003, 2005, 2009, and 2010 respectively.
Graph-11
Source: WDI, World Bank
0
1
2
3
4
5
6
Unemployment, total (% of total labor force) (national estimate)
0
2
4
6
8
1996 2000 2003 2005 2009 2010
Unemployed Male Vs Female
Unemployment, female (% of female labor force) (national estimate)
Unemployment, male (% of male labor force) (national estimate)

24. 18
Figure: This is another comparative graph based on the rate of male and female unemployment.
From the graph, it can easily be understood that female unemployment rate is larger than male
unemployment rate. Female unemployment rate was 2.2, 3.3, 4.9, 7, 7.4, and 5.7 percent whereas
male unemployment rate was 2.7, 3.2, 4.2, 3.4, 4.2, and 4 percent in 1996, 2000, 2003, 2005, 2009,
and 2010 respectively.
Graph-12
Source: WDI, World Bank
Figure: The graph is presenting comparative information of unemployment rate with primary
and secondary education. From the graph, it can easily be understood that unemployment rate
with primary education is larger than with secondary education which is quite logical. In 1996,
unemployment with primary education was 47.4% where unemployment with secondary
education was 28.4 %. Then, unemployment rate with primary education was 54.3, and 33
percent and unemployment rate with secondary education was 22.7, and 24.4 percent in 2000,
and 2005 respectively.
0
10
20
30
40
50
60
1996 2000 2005
Unemployment with
Primary Education Vs Secondary Education
Unemployment with primary education (% of total unemployment)
Unemployment with secondary education (% of total unemployment)

25. 19
Chapter-4
Inflation

26. 20
Inflation
In economics, inflation is a sustained increase in the general price level of goods and services in
an economy over a period of time. When the price level rises, each unit of currency buys fewer
goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit
of money – a loss of real value in the medium of exchange and unit of account within the economy.
A chief measure of price inflation is the inflation rate, the annualized percentage change in a general
price index, usually the consumer price index, over time.
The opposite of inflation is deflation.
Types of Inflation
 Low inflation: Single digit inflation
 Galloping inflation: Double or more digit inflation
 Hyperinflation: If galloping inflation becomes persistent and consistent it is known as
hyperinflation.
 Anticipated inflation: Anticipated inflation is the percentage increase in the level of prices over a
given period that is expected by participants in an economy.
 Unanticipated inflation: Unanticipated inflation occurs when people do not know inflation is
going to occur until after the general price level increases.
 Demand pull inflation: Demand-pull Inflation is asserted to arise when aggregate demand in an
economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises
and unemployment falls, as the economy moves along the Phillips curve. This is commonly
described as "too much money chasing too few goods".
 Cost push inflation: Cost push inflation is inflation caused by an increase in prices of inputs like
labor, raw material, etc. The increased price of the factors of production leads to a decreased supply
of these goods.

27. 21
Inflation affects economies in various positive and negative ways.
The negative effects of inflation include:
 An increase in the opportunity cost of holding money,
 Uncertainty over future inflation which may discourage investment and savings, and
 If inflation were rapid enough, shortages of goods as consumers begin hoarding out of
concern that prices will increase in the future.
Positive effects include:
 Reducing the real burden of public and private debt,
 Keeping nominal interest rates above zero so that central banks can adjust interest rates to
stabilize the economy, and
 Reducing unemployment due to nominal wage rigidity.
To get a vivid picture of the nature of inflation in Bangladesh, this section will firstly provide some
basic ideas regarding determinants of inflation and then a brief discussion on recent inflation
experience in Bangladesh.
Determinants of Inflation
Inflation can be treated as a country specific phenomenon as the determinants of inflation differ
across the countries. Yet there are some common factors in determining inflation and these can be
divided into two categories: (i) Demand factors and (ii) Supply factors
Demand Factors: If employment and production of the economy is above the long-term natural
rate, the output gap is positive and the resulting inflation is demand-pull inflation. Demand factors
include output gap, real money wage gap, nominal exchange rate and imported inflation.
Supply Factors: If the output-gap is constant but inflation is rising due to adverse supply shocks
such as oil-price hikes, floods, and droughts, inflation is cost-push. Supply factors include food
inflation, % change in index of food production, rainfall, differential between wage inflation and
productivity growth and global oil prices.

28. 22
Inflation Experience of the Bangladesh Economy
The data represented in the table show the record of inflation in Bangladesh from 1996 to 2015
which accounts for about 20 years. As noted from the table, inflation figure in Bangladesh during
1996 was around 2.3%.
Graph-13
Source: WDI, World Bank
After that it followed an increasing trend up to 1998 and has been continued to decrease between
the year 1998 to 2001. This trend of inflation is shown in the above graph where the horizontal axis
represents the time period and the vertical axis represents the rate of inflation. Although the line
chart shows some fluctuations around the trend line, close inspection reveals that they are moving
upward slowly over 20 years.
Between 2000 and 2001, a heavy shortfall of food and all other agricultural production due to
catastrophic flood in 1998, adjustments in petroleum prices since 2003, increases in world
commodity prices - especially food grain and petroleum, excessive growth of high powered money
during 2006 (Fiscal Year 06), an increase in disposable income in some groups due to the ban on
hartals and lockouts, excessive liquidity due to massive crackdown on corruption, syndication by
trading mafias who were hoarding goods and thereby driving up prices to make windfall profits
and two consecutive floods in July-September 2007 and the cyclone in November 2007. Natural
0
2
4
6
8
10
12
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Inflation, Consumer Prices (Annual %)

29. 23
calamities during the year 2007, eventually resulted in a high inflation in the years 2010 and 2011.
After this, the Government of Bangladesh gave subsidies in agricultural sector at a high scale which
caused a drop down in the inflation rate of the country during the year 2013 to 2015.
In contrast, the softening of inflationary pressures in Bangladesh was mainly due to fall in prices
of foods and fuel in international markets, favorable weather condition, bumper domestic
production, restoration of business confidence, stability in political situation, lower and subsidized
input costs, open market operation, sufficient import of food grain and widening of social safety
net programs etc.

30. 24
Chapter-5
Relationship of GDP, Unemployment, and Inflation

31. 25
Relation among these Indicators
Phillips Curve
The Phillips curve is a single-equation empirical model, named after A. W. Phillips, describing a
historical inverse relationship between rates of unemployment and corresponding rates of inflation
that result within an economy. Stated simply, decreased unemployment, (i.e., increased levels of
employment) in an economy will correlate with higher rates of inflation.
While there is a short run tradeoff between unemployment and inflation, it has not been observed
in the long run. In 1968, Milton Friedman asserted that the Phillips curve was only applicable in
the short-run and that in the long-run, inflationary policies will not decrease unemployment.
Friedman then correctly predicted that, in the 1973–75 recessions, both inflation and
unemployment would increase. The long-run Phillips Curve is now seen as a vertical line at the
natural rate of unemployment, where the rate of inflation has no effect on unemployment.
Accordingly, the Phillips curve is now seen as too simplistic, with the unemployment rate
supplanted by more accurate predictors of inflation based on velocity of money supply measures
such as the MZM ("money zero maturity") velocity, which is affected by unemployment in the
short but not the long term.
The Applicability of Phillips Curve to Bangladesh
A.W. Phillips (1958) popularized the Phillips curve by drawing a relationship between the rate of
inflation and the rate of unemployment in the United Kingdom from 1861 to 1957. In the 1970s,
the relation broke down for both US and OECD countries. Actually, it clearly depends on the nature
and structure of the economy. In this study, we try to analyze the applicability of Phillips Curve to
Bangladesh using the most recent macroeconomic time series data from 1995-96 to 2009-2010 for
around 14 years. The Johansen multivariate Co-integration test indicates that long run Phillips
curve does not exist in Bangladesh. Again, Granger causality test suggests a unidirectional positive
causality from rate of inflation to rate of unemployment that is totally the opposite picture of the

32. 26
expected relationship in Phillips curve. The important finding is that stagflation is evident in
Bangladesh.
Okun’s Law
In economics, Okun's law (named after Arthur Melvin Okun, who proposed the relationship in
1962) is an empirically observed relationship between unemployment and losses in a country's
production. The "gap version" states that for every 1% increase in the unemployment rate, a
country's GDP will be roughly an additional 2% lower than its potential GDP. The “difference
version” describes the relationship between quarterly changes in unemployment and quarterly
changes in real GDP. The stability and usefulness of the law has been disputed.
A long run relationship exists between unemployment and GDP and an inverse relationship exists
between them in Bangladesh. The Okun‘s law can be used to explain the situation of Bangladesh.
This means that every effort to decrease the level of unemployment is an effort towards increasing
the level of output in Bangladesh. A study of 27 years (1984 to 2010) found that, a reduction in
unemployment by 1 percent will increase GDP by 1.12 percent.
As this study has revealed that the Okun‘s law exists in the situation of Bangladesh, Bangladesh
can therefore be on the right road to development by investing in activities that reduce the level of
unemployment. These activities include job creation and entrepreneurial development efforts that
are aimed towards employment generation. These are the activities we recommend that policy
makers focus on. In addition, education system in Bangladesh needs a revolution. Unemployment
in Bangladesh may be due to the reluctance of employers to employ Bangladeshi graduates because
of their unbelief in the Bangladeshi education system and their experience. Dabalen, Oni, and
Adekola (2000) in their study of Nigeria postulated that employers complain that graduates are
poorly prepared for work and academic standards have fallen considerably making University
degree void of technical competence. This is also true for Bangladesh. From their postulation the
current education system equips Bangladeshi students will skills set that may not match the needs
of employers in the world of work. Addressing this challenge may contribute to the reduction of
unemployment, which will ultimately increase the level of output.

33. 27
Conclusion
Bangladesh's economy has grown roughly 6% per year since 1996 despite political instability, poor
infrastructure, corruption, insufficient power supplies, slow implementation of economic reforms,
and the 2008-09 global financial crisis and recession. Although more than half of GDP is generated
through the service sector, almost half of Bangladeshis are employed in the agriculture sector with
rice as the single-most-important product. Garment exports, the backbone of Bangladesh’s
industrial sector and 80% of total exports, surpassed $21 billion last year, 18% of GDP. The sector
has remained resilient in recent years amidst a series of factory accidents that have killed over
1,000 workers and crippling strikes that shut down virtually all economic activity. Steady garment
export growth combined with remittances from overseas Bangladeshis, which totaled almost $15
billion and 13% of GDP in 2015, are the largest contributors to Bangladesh’s current account
surplus and record foreign exchange holdings.
With a continued average economic growth of over 6% in the last twenty years (1996-2015),
Bangladesh now proudly stands as an emerging trade and investment destination in South Asia.
The steady growth in export business, hard-working labor force and committed entrepreneurs
supported by the pro-business, pro-investment policies of the Government are leading Bangladesh
towards the line of global business competency. The country’s unequivocal position for peace and
harmony, regional stability, cooperation, economic development through international and regional
trade with its development and trade partners and an increasing flow of remittance by expatriate
Bangladeshis living across the world have helped the country achieve and retain the impressive
economic status. It is expected that GDP will grow around 7% in the FY 2015-16. A strong
domestic demand, high export growth and continued expansion of infrastructural facilities
attributed to the accomplishment of accelerated growth amidst the fragile pace of global economic
recovery.

34. 28
Bibliography
1. World Bank Website http://databank.worldbank.org/data/reports.aspx?source=world-development-
indicators
2. Bangladesh Bank Website Database www.bb.org.bd
3. Asian Development Bank http://www.adb.org/countries/bangladesh/economy
4. Trading Economics Website www.tradingeconomics.com
5. Worldwide inflation Data http://www.inflation.eu