Why Bangladesh Needs a New Economic Growth Model

nearly four decades, Bangladesh's economic development has been driven largely by its ready-made garment (RMG) industry. The sector has generated millions of jobs, earned substantial foreign exchange and transformed Bangladesh into one of the world's leading apparel exporters.

This achievement remains a major source of national pride. However, the economic model that brought Bangladesh success in the past may not be sufficient to secure its future prosperity.

Bangladesh is now facing a more challenging global economic environment. Its economic vulnerabilities include an overdependence on garment exports, widespread low-productivity employment, an education system that fails to meet labour-market demands and institutions weakened by corruption.

These challenges are interconnected. Simply increasing economic growth will not be enough. The country must develop new sources of productivity, create better employment opportunities and ensure that economic prosperity is shared more equally.

A sustainable growth strategy should rest on four interconnected pillars:

* Increasing productivity across the domestic economy.

* Transforming education into practical skills and capabilities.

* Strengthening governance and eliminating corruption.

* Implementing effective industrial policies for both domestic and export-oriented industries.

1. Changing Global Economy Requires a New Strategy

Bangladesh's export success emerged during the period of rapid globalisation, when expanding international markets, predictable trade policies and strong demand for labour-intensive products created opportunities for developing countries.

However, the global economic environment has changed significantly.

The COVID-19 pandemic exposed weaknesses in international supply chains. Protectionist trade policies, particularly under US President Donald Trump, have made international markets less predictable. Geopolitical conflicts have disrupted energy supplies, shipping routes and food markets.

According to the World Trade Organization, global merchandise trade is expected to grow in 2026, but much of that expansion is likely to come from technology-related products, including semiconductors and servers, rather than traditional labour-intensive goods such as garments.

At the same time, increasing geopolitical and economic fragmentation is making it more difficult for developing countries to expand their exports.

Automation and artificial intelligence are also reducing manufacturing's traditional capacity to absorb large numbers of workers. This makes it increasingly difficult for Bangladesh to follow the same development path taken by earlier Asian industrial economies.

Bangladesh has another major weakness: its failure to develop a sufficiently diversified export base.

Although the garment industry has achieved remarkable success, other industries have not reached comparable levels of international competitiveness.

The solution is not to abandon export-led growth. Rather, Bangladesh must strengthen its existing export industries while developing new sources of productivity and employment throughout the domestic economy.

2. First Pillar: Make the Domestic Economy an Engine of Growth

Bangladesh's development strategy has traditionally focused heavily on modern export-oriented industries, particularly the garment sector.

However, most Bangladeshis do not work in export factories. They earn their livelihoods through agriculture, construction, transportation, retail businesses, restaurants, repair services and small informal enterprises.

Approximately 84 percent of employed workers are engaged in informal employment, often without formal contracts, job security or social protection.

These sectors are frequently treated as secondary parts of the economy, expected to provide temporary livelihoods until workers can move into formal industrial employment.

But for the overwhelming majority of Bangladeshis, these activities are the economy itself.

Their productivity will therefore play a decisive role in determining future living standards.

Improving the domestic economy requires more than microcredit programmes or encouraging people to become entrepreneurs.

Small businesses need:

* Reliable electricity and infrastructure.

* Efficient transportation and logistics.

* Easier access to affordable financing.

* Better business management.

* Modern technology and digital solutions.

* Access to larger domestic and international markets.

Agriculture also requires substantial modernisation through mechanisation, improved storage facilities, cold-chain systems and food-processing capabilities.

Similarly, construction, transportation and repair services need better-trained workers, modern equipment and improved professional standards.

Digital platforms and mobile financial services can support this transformation, but their success should be measured by actual improvements in productivity and workers' earnings rather than simply the number of users.

Stronger connections between large corporations and small businesses are also essential. Such relationships can help smaller enterprises acquire modern technology, management expertise and international quality standards.

However, domestic productivity alone cannot sustain economic growth. Bangladesh still needs foreign exchange to import machinery, fuel, fertiliser and advanced technology.

Therefore, domestic economic development and export expansion must complement each other.

3. Second Pillar: Transform Education into Productive Capabilities

Bangladesh has made considerable progress in expanding access to education. However, increased school enrolment does not necessarily translate into better learning outcomes or employable skills.

Many students graduate without adequate literacy, numeracy, analytical abilities or practical knowledge.

Consequently, Bangladesh faces a paradox: graduate unemployment exists alongside shortages of skilled and competent workers.

The problem is not simply insufficient funding. The education system is also affected by excessive dependence on examinations and certificates, rote memorisation, weak teaching standards, political interference and academic malpractice.

The country must shift its priorities from educational certificates to actual learning and employability.

Several reforms are necessary:

Strengthen foundational education: Students must develop strong reading, writing, mathematical and analytical skills from an early age.

Improve technical and vocational education: Training programmes should be connected to real employment opportunities through apprenticeships, internships and practical learning.

Build stronger industry-academia partnerships: Educational institutions must work closely with employers to identify the skills required by the modern economy.

Improve university standards: Universities should prioritise academic merit, quality teaching, research and innovation.

Investment in education is equally important. Public expenditure on education has remained below 2 percent of GDP for approximately two decades, significantly lower than UNESCO's recommended range of 4–6 percent.

Increasing education spending is necessary, but financial investment must be accompanied by transparency, accountability and measurable improvements in educational outcomes.

Education policy is also industrial policy. Agricultural modernisation, technological advancement and export diversification all depend on having sufficiently skilled workers, engineers, technicians and managers.

No amount of tax incentives or tariff protection can compensate for a workforce that lacks the necessary capabilities.

Automation and artificial intelligence make this challenge even more urgent.

Bangladesh risks growing old before it becomes sufficiently skilled. Its next economic transformation will depend less on how cheaply its people work and more on how productively they contribute.

4. Third Pillar: Strengthen Governance and Eliminate Corruption

Corruption has become one of the major structural obstacles to Bangladesh's economic transformation.

Access to bank loans, government contracts, land, licences and regulatory privileges often depends more on political connections than on business competence.

As a result, many entrepreneurs spend more time building political relationships than improving technology, management and productivity.

This weakens competition and directs resources towards politically connected individuals rather than the most capable businesses.

The consequences extend beyond slower economic growth.

Corruption diverts public money away from essential sectors such as education, healthcare and infrastructure. It also weakens the government's ability to collect taxes.

Bangladesh collects less than 7 percent of GDP in tax revenue, placing it among the countries with the lowest tax-to-GDP ratios.

Tax exemptions and selective enforcement further distort the system, placing a disproportionate burden on ordinary taxpayers.

To address these problems, Bangladesh needs:

* Transparent public procurement.

* Stronger financial-sector regulation.

* Predictable business and investment policies.

* Independent regulatory oversight.

* Effective law enforcement.

* Equal treatment under the law.

* Stronger accountability in public institutions.

Singapore offers an important example of how effective institutions and strict anti-corruption measures can support economic transformation. Bangladesh does not need to replicate Singapore's political system, but it can learn from the importance of institutional integrity and accountability.

Bangladesh already has anti-corruption institutions. The bigger problem is ensuring that these institutions operate independently and impartially.

Anti-corruption efforts have frequently been criticised for targeting individuals associated with previous governments while failing to investigate alleged wrongdoing involving those currently in power.

However, corruption is not limited to any particular political party or administration.

A credible anti-corruption system must investigate wrongdoing regardless of whether the accused person belongs to the government, opposition or any other influential group.

Justice that targets only former officials while overlooking current abuses cannot establish public confidence.

Good governance is also essential for successful industrial policy.

A government that provides financial incentives to businesses must also be capable of withdrawing those benefits when companies fail to meet agreed performance standards.

Without accountability, industrial policies risk becoming instruments of political patronage rather than economic development.

5. Fourth Pillar: Introduce Smart Industrial Policy

Bangladesh's industrial history demonstrates that successful industrialisation requires more than market forces. It also depends on learning, technological development and supportive public policies.

A notable example comes from 1979, when 130 workers from Desh Garments travelled to Busan, South Korea, for training at Daewoo, its international business partner.

After returning to Bangladesh, these workers brought valuable knowledge of production management, procurement, quality control and factory operations.

Their experience helped spread technical and managerial expertise throughout the emerging garment industry.

Government policies also played an important role. Bonded warehouse facilities and back-to-back letters of credit enabled exporters to import necessary materials and finance production against confirmed foreign orders.

However, the success of the garment industry also exposed a major weakness in Bangladesh's industrial development.

The country managed to build one globally competitive export industry but failed to develop an equally effective system for nurturing other industries.

Although successive governments have announced export diversification strategies, garments continue to dominate Bangladesh's export earnings.

The problem is not simply a lack of policy announcements. Weak implementation, poor coordination and inadequate accountability have prevented many initiatives from delivering meaningful results.

South Korea provides an important lesson. Its government linked public support to measurable export performance, technological progress and industrial competitiveness.

Bangladesh adopted the principle that government assistance could help industries grow but largely overlooked the equally important requirement that such assistance should depend on actual performance.

### What should smart industrial policy look like?

A practical industrial strategy for Bangladesh should include six major priorities.

1\. Identify the real obstacles before selecting industries

The government should identify specific barriers affecting businesses, including unreliable electricity, skills shortages, inadequate transport infrastructure, expensive financing and complicated regulations.

Instead of distributing subsidies indiscriminately, public resources should target clearly identified economic constraints.

2\. Extend industrial policy beyond export factories

Industrial development should also cover agriculture, small businesses and domestic service industries.

Agricultural extension services, cold-chain infrastructure, supplier development, management training and technological support could benefit millions of workers.

3\. Make export diversification a practical priority

Bangladesh should continue upgrading its garment industry by moving towards higher-value products, advanced manufacturing techniques and man-made fibres.

At the same time, the government should explore the international competitiveness and growth potential of other sectors, including:

* Light engineering.

* Pharmaceuticals.

* Footwear and leather products.

* Agro-processing.

* Information technology.

* Business-process outsourcing and professional services.

4\. Make government support conditional and time-bound

Subsidised loans, tax incentives and temporary trade protection should be linked to measurable targets.

These may include productivity improvements, technological advancement, export growth and employment generation.

Businesses that consistently fail to achieve agreed targets should lose access to preferential support.

5\. Establish clear accountability mechanisms

Every major industrial policy initiative should have a designated government agency, sufficient funding, publicly available targets and independent performance evaluations.

Private-sector participation is important, but business interests must not be allowed to dominate policymaking for personal benefit.

6\. Reduce anti-export bias

High import tariffs can allow businesses to earn comfortable profits in the domestic market without developing the competitiveness required to succeed internationally.

Protection without performance requirements encourages inefficiency and discourages innovation.

Industrial protection should therefore be temporary and linked to measurable improvements in competitiveness.

Importantly, smart industrial policy does not require the government to predict exactly which industries will succeed.

Instead, the government must develop the institutional capacity to identify problems, encourage innovation, coordinate investments and discontinue programmes that fail to deliver results.

Bangladesh cannot simply copy South Korea's historical industrial policies because global trade rules, technology and international market conditions have changed.

Nevertheless, one fundamental principle remains relevant: government support must help businesses develop productive capabilities, while competition and accountability ensure that public resources are used effectively.

### 6\. Four Pillars, One Integrated Economic Strategy

The four pillars of Bangladesh's proposed growth model are closely interconnected.

| Growth pillar | Expected economic contribution |

| ----------------------- | ----------------------------------------------------------------- |

| Domestic productivity | Higher incomes, better employment and stronger businesses |

| Quality education | Skilled workers, innovation and technological advancement |

| Good governance | Reduced corruption, efficient investment and fair competition |

| Smart industrial policy | Export diversification and internationally competitive industries |

None of these pillars can deliver sustainable results independently.

Education will have limited economic value if the economy cannot create productive employment opportunities. Similarly, industrial incentives will fail if businesses are not held accountable for their performance.

The central challenge is therefore effective coordination and implementation.

Government policies must identify the most important economic constraints, allocate resources strategically and ensure that both public institutions and private-sector beneficiaries deliver measurable results.

Ultimately, economic success should be judged by improvements in productivity, employment quality and the distribution of prosperity.

### 7\. The Cost of Continuing with the Existing Growth Model

Bangladesh's biggest economic danger is not necessarily the collapse of its garment industry.

The greater risk is that the rest of the economy may fail to generate the productivity, employment opportunities and technological capabilities required to sustain another generation of economic development.

If the country continues with its existing approach, several problems could become more severe:

* Continued dependence on a narrow export base.

* Persistent low-productivity employment.

* Increasing graduate unemployment.

* A shortage of skilled workers.

* Misallocation of public resources through corruption.

* Limited opportunities for young people.

* Greater income inequality.

* Reduced social and economic mobility.

When educational qualifications fail to translate into employment opportunities and economic success depends more on personal connections than professional competence, public frustration and institutional distrust are likely to increase.

Bangladesh must continue strengthening its garment industry. However, it must also improve productivity in agriculture, small businesses, transportation, manufacturing and service industries.

Its education system must become a source of genuine knowledge and practical capabilities rather than simply producing certificates.

At the same time, political patronage must give way to transparent, accountable and effective institutions.

The 130 workers who travelled to Busan in 1979 demonstrated what focused learning, entrepreneurial initiative and supportive government policies could achieve.

Today, Bangladesh faces a much larger challenge: extending that same dynamism throughout the entire economy and ensuring that meaningful economic opportunities are available to ordinary citizens rather than only a privileged few.

### Conclusion: Bangladesh Must Look Beyond Garments

Bangladesh's next phase of economic development cannot depend exclusively on the ready-made garment industry.

The country needs a broader and more balanced growth strategy that combines export competitiveness with domestic productivity, quality education, technological advancement, good governance and industrial diversification.

The garment sector should remain an important engine of economic growth, but it cannot be the only one.

Bangladesh's next economic miracle, if it is to happen, will emerge as much from its farms, workshops, classrooms and small businesses as from its garment factories.

The real challenge is to build an economy where productivity, skills, innovation and merit—not political.