Evaluate the constraints on growth and development. Refer to a country like Bangladesh.

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Bangladesh has experienced significant economic growth in recent years, however, there are some constraints
to its growth and development.

Firstly, ready-made-garments (RMG) makes up over 50% of Bangladesh’s exports. Although the earnings from
RMG exports have promoted significant growth in the country and has led to development, the country’s over
dependence on it is a cause for concern. One issue is the volatility of RMG prices. Global demand for
Bangladeshi garments could fall for a number of reasons including a global recession, more competitive prices
from competitors etc.; causing a leftward shift in D, resulting in price to fall from P to P1 as illustrated below.

This may cause a fall in Bangladesh’s export earnings, which can make it hard to fund infrastructure and
education development projects. Hence, Bangladesh should focus on diversifying its exports to other sectors
such as IT and pharmaceuticals in order to safeguard its export earnings from the volatility of RMG prices.

Next, the Harrod-Domar model states that investment, saving and technological change is required in an
economy for economic growth. According to the model, economic growth increases with increasing savings.
This can be explained by considering that aside from borrowings, investments can also be funded through
savings. Hence, investment in new physical capital, improvement in the quality of human capital, etc. can lead
to an increase in productivity and output, leading to a rightward shift in the country’s production possibility
frontier (PPF).

The same effect can be achieved with technological change. However, in a developing country like Bangladesh
where wealth is limited, individuals struggle to afford food and other basic necessities and a considerable
proportion of the population lives in absolute poverty. Hence, marginal propensity to save (MPS) in the
country is low and without sufficient savings, capital investment is limited.

However, a major criticism of this model is the fact that even if savings is high, marginal propensity to invest
(MPI) can still be low due to a various number of reasons such as low confidence, inadequate facilities to
facilitate investment, etc. Hence, it is possible to not view low levels of savings in Bangladesh as a constraint to
its growth.
The demographic of a country tends to be directly linked to its development. Bangladesh’s huge population of
over 170 million can act both as promoter of growth and development, or as a constraint to it.

On one hand, most families in Bangladesh have one sole earner who has to support the entire family. This
means that the proportion of workers to their dependents is low, resulting in a huge proportion of an
individual’s wages being spent towards meeting the basic needs and accommodating their dependents,
resulting in very little left over as savings. This has a negative effect on economic growth as discussed earlier.

However, Bangladesh is enjoying a period of demographic dividend where economic growth potential is high
due to the proportion of working age people in the population being higher than the non-working age share,
resulting in an increase in the quantity of human capital in the country.

However, there is also a huge strain on the education system to make sure that individuals have the necessary
skills to start working and also on the government to make sure that there are enough job vacancies to go
around. Or else, the country might suffer from underemployment and unemployment.

Additionally, there are non-economic factors as well that act as constraints. For example, migration.
Highschool graduates in Bangladesh seek higher education in foreign countries in large volumes due to the
general consensus of education abroad being of higher quality. Moreover, skilled workers from Bangladesh
often emigrate to foreign countries as well, attracted by better wages and living standards. This collectively
leads to a “brain drain” in the country, leading to a decrease in the country’s potential economic growth.

Moreover, Capital flight is also a major issue in the country where funds allocated to public expenditure is
often siphoned off to foreign countries by corrupt government elites. Business elites in the country also prefer
to hide their money offshores in attempts of tax evasion. This ultimately leads to capital outflow in the
country, causing a further fall in the country’s LRAS as illustrated below.

In conclusion, there are many constraints present to the growth and development for a developing country
like Bangladesh. However, this can be combatted by government policies and legislature.