Edited by Paul Cook, Raul Fabella and Cassey Lee
Chapter 14: Foreign Competition and Growth: Bangladesh Manufacturing Industries
Selim Raihan INTRODUCTION The relationship between increased foreign competition (or trade liberalization) and economic growth is a controversial issue. Trade liberalization has been one of the major policy reforms in the developing countries for the last two decades. Whilst there is an apparent consensus that the eﬀects of increased foreign competition on economic performance are likely to be positive, the evidence to support this is far from conclusive. On the one hand, the theories on the relationship between opening up the economy and growth are not clear and on the other hand, there are marked diﬀerences in the methodologies and correspondingly the ﬁndings of the empirical research on the foreign competition–growth nexus. Macro-level studies tend to concentrate on the cross-country variation in growth performance and link this to variations in the level of trade liberalization. Single-country macro studies largely assess the impact of trade liberalization on growth performance over time. There is a vast literature that explores the impact of reform at the sectoral level. The study presented in this chapter is an empirical investigation of foreign competition on the manufacturing sector in Bangladesh. It seeks to ﬁnd out whether or not an increase in foreign competition aﬀects the output of the manufacturing sector in Bangladesh between 1977–98. Most of the empirical research in this context has used ﬁrm-level data in a panel framework and often fails to use a long enough time span to incorporate both the pre- and post-trade liberalization period. Furthermore, most...
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