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 Economic and Social
Development of
Bangladesh
Miracle and Challenges

EDITED BY
Yasuyuki Sawada, Minhaj Mahmud and Naohiro Kitano
 Economic and Social Development of Bangladesh

“The book is an important contribution to our understanding of how Bangladesh

has transformed itself over the past decades from “a test case” to a development
surprise. The achievements as well as future challenges are rigorously analysed by
applying modern analytical tools–such as for measuring well-being and trust– and
by focusing on the agents of change, the microfinance institutions in particular.
The book will be equally useful to academics and practitioners interested in
Bangladesh’s development story and the lessons to be learnt.”
—Wahiduddin Mahmud, Former Professor of Economics, Dhaka University,
and Chairman of South Asia Network of Economic Research Institutes;
co-author of The Theory and Practice of Microcredit (Routledge).
 Yasuyuki Sawada • Minhaj Mahmud
Naohiro Kitano
Editors

Economic and Social

Development of
Bangladesh
Miracle and Challenges
Editors
Yasuyuki Sawada Minhaj Mahmud
Faculty of Economics Bangladesh Institute of Development
University of Tokyo Studies (BIDS)
Tokyo, Japan Dhaka, Bangladesh

Naohiro Kitano
Japan International Cooperation
Agency Research Institute
Tokyo, Japan

ISBN 978-3-319-63837-9    ISBN 978-3-319-63838-6 (eBook)

DOI 10.1007/978-3-319-63838-6

Library of Congress Control Number: 2017951918

© Japan International Cooperation Agency Research Institute 2018

This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights of
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tional affiliations.

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 Foreword

The founding of Bangladesh in 1971 was met by a series of calamities:

poverty, vulnerable social and economic bases, poor infrastructure net-
works, and harsh natural conditions such as severe cyclones and consecu-
tive floods. Even after it first gained independence from the British Raj
and became East Pakistan in 1947, the Bangladeshis had to struggle
through the Liberation War in order to secure real independence with
political and linguistic sovereignty. Despite its problematic beginning as a
nation, in recent years Bangladesh has undoubtedly been on an ascending
trajectory of dynamic development. The country has seen great achieve-
ments in industrialization—promoting gender equality in education,
improving the overall employment situation, providing financial assistance
to the most vulnerable, and through structural transformation—has
reduced some of the risks faced by the population, and thus improved
their well-being.
Since 1973, just two years after Bangladesh’s independence, the Japan
International Cooperation Agency (JICA) has been a key partner. Working
in cooperation with the people and the government of Bangladesh in
almost all sectors throughout the country, JICA has provided technical
cooperation, the Official Development Assistance loan, aid grants, and
volunteers. As president of JICA, I am pleased that this volume is able to
contribute a number of policies and strategies for bringing about sustain-
able socioeconomic development in the country. The volume provides
insights for researchers, practitioners, and the general public through the
dissemination of the findings of the research project Empirical Study on
Risk and Poverty in Bangladesh.

v
vi FOREWORD

This book aims to discuss Bangladesh’s economic and social develop-

ment in recent years, which may be described as a “miracle.” The book
explores the factors which drove this “miracle” in the face of various natu-
ral and socioeconomic hardships, and potential challenges that the coun-
try still needs to address. Focusing on a variety of topics and analyses based
on solid quantitative evidence, this book advances effective policy recom-
mendations that can be replicated in other developing countries.
The tragic incident that took place in 2016 is still fresh in our minds.
On July 1, 2016, seven Japanese development specialists were killed and
one injured in a terrorist attack in Dhaka; all eight were engaged in a
development project at the time. While we were compelled to suppress
our anger toward the criminals who committed this callous act of terror-
ism, this has not hindered our development work in Bangladesh. I sin-
cerely pray that those who lost their lives rest in peace, and I offer my
condolences to their loved ones.

Japan International Cooperation Agency

President
Shinichi Kitaoka
 Acknowledgments

This book greatly benefited from using the information revealed in the
“Livelihood System of Rural Households Panel Data,” a survey of a
nationally representative sample of rural households in Bangladesh. These
data were collected by the late Dr. Mahabub Hossain, former executive
director and adviser, BRAC. We gratefully acknowledge his contribution
and utmost support for our work by allowing the use of the data set for
the analyses in Chaps. 6 and 10. Chapter 10 also benefited from using the
second-generation panel data of the first-generation village level studies
(VLS) conducted by the International Crop Research Institute for Semi-
Arid Tropics (ICRISAT) in the Andhra Pradesh and Maharashtra states
of India. We thankfully acknowledge the contribution of ICRISAT.
Chapter 14 benefited from using the data collected by the BRAC Institute
of Governance and Development (BIGD) as part of its annual flagship
report. We sincerely thank Dr. Sultan Hafeez Rahman for his support in
this regard.
Chapter 12 benefited from data collected using funding from the
Swedish International Development Agency (Sida), which is thankfully
acknowledged. Chapters 4 and 9 used the data that the authors collected
with the financial support of the World Bank and benefited from the tech-
nical support provided by the Bangladesh Institute of Development
Studies (BIDS) and the Institute of Microfinance. Chapter 3 benefited
from the data obtained through the Palli Karma-Sahayak Foundation
(PKSF), Credit and Development Forum (CDF), and the Bangladesh
Bureau of Statistics (BBS). We duly acknowledge the contributions of
these institutions. We also truly appreciate that the micro-data collection

vii
viii ACKNOWLEDGMENTS

conducted by JICA-RI in Bangladesh under this research project contrib-

uted to interesting analyses in various chapters of the book.
We express our gratitude to Ambassador Akio Hosono, Senior Research
Adviser of JICA-RI, for his support and encouragement toward our
research from the very beginning of this book project. The book inception
workshop was held in Tokyo in July 2014, and we received very insightful
comments from all participants, particularly Mr. Hiroshi Kato, Senior Vice
President of JICA, Professor Keijiro Otsuka, and Professor Tetsushi
Sonobe. The outline of the book, including the initial drafts of some chap-
ters, was presented in an organized session at the Asian Society of
Agricultural Economists (ASAE) Conference in October 2014 in Dhaka,
and we thankfully acknowledge the helpful comments obtained from the
participants, particularly from Mr. Mikio Hataeda, the then chief repre-
sentative of JICA Bangladesh Office, Professor Abdul Bayes, and the late
Dr. Mahabub Hossain. We thankfully acknowledge insightful comments
from workshop participants, particularly Professor Mushfiq Mobarak of
Yale University, and JICA-RI researchers, Dr. Daiji Narita, Dr. Mai Seki,
and Mr. Kengo Igei, as well as comments and suggestions from Dr.
Binayak Sen of BIDS and Dr. Farzana Munshi of BRAC University.
Finally, we duly acknowledge the excellent editorial support from Mr.
Yasuhiko Sato, the editor of JICA-RI, the continuous advice and encour-
agement by Mr. Ken Odajima, who leads the research project at JICA-RI,
and the coordination support from then/current JICA-RI Research
Fellows and Research Officers, especially Dr. Suguru Miyazaki, Mr. Naoki
Nishimura, Mr. Eiji Yamada, Mr. Akira Hara, and Ms. Hiroko Matsuo, for
this book project.

Yasuyuki Sawada
Minhaj Mahmud
Naohiro Kitano
 Contents

Part I Economic Transformation   1

1 Development Transformation in Bangladesh: An Overview   3

Minhaj Mahmud, Keijiro Otsuka, Yasuyuki Sawada,
and Eiji Yamada

2 The Miraculous Development of the Garment

and Pharmaceutical Industries in Bangladesh  27
Tetsushi Sonobe, Khondoker Abdul Mottaleb, and
Md. Nurul Amin

3 Welfare Implications of Subsidies in the Microfinance

Industry in Bangladesh  53
Yasuyuki Sawada, Yuhei Miyauchi, and Junichi Yamasaki

4 Bangladesh’s Structural Transformation: The Role

of Infrastructure  71
Shahidur R. Khandker and Hussain A. Samad

5 International Migration and Remittances for Economic

Development in Bangladesh: An Overview  93
Akira Murata

ix
x Contents

Part II Social Transformation 115

6 Non-farm Sector Growth and Female Empowerment

in Bangladesh 117
Minhaj Mahmud, Keijiro Otsuka, Yasuyuki Sawada,
Mari Tanaka, and Tomomi Tanaka

7 Primary, Secondary, and Tertiary Education in

Bangladesh: Achievements and Challenges 135
Hisaki Kono, Yasuyuki Sawada, and Abu S. Shonchoy

8 NGO Employments and Job Preferences of Youth:

Evidence from Bangladesh 151
Akira Murata and Naoki Nishimura

Part III Welfare Improvements 175

9 Bangladesh’s Achievement in Poverty Reduction:

The Role of Microfinance Revisited 177
Shahidur R. Khandker and Hussain A. Samad

10 Is Multiple Borrowing a Bad Sign? Evidence from

Bangladesh and India 199
Yasuyuki Sawada, Mari Tanaka, and Minhaj Mahmud

11 Urbanization and Subjective Well-Being in Bangladesh 215

Minhaj Mahmud and Yasuyuki Sawada

12 Happiness in Life Domains: Evidence from

Rural Bangladesh 233
Minhaj Mahmud and Yasuyuki Sawada
 Contents 
   xi

Part IV Risk and Challenges 251

13 Challenges in Reducing the Number of Disaster

Victims in Bangladesh 253
Masahiro Shoji and Akira Murata

14 Governance Challenges: Institutional Quality and

Trust in Bangladesh 273
Minhaj Mahmud and Yasuyuki Sawada

Author Index 291

Subject Index 299
 List of Abbreviations

APSC Annual Primary School Census

ASA Association for Social Advancement
ASPR Annual Sector Performance Review
ATE Average Treatment effects
BDT Bangladeshi Taka
BGMEA Bangladesh Garment Manufacturers and Exporters Association
BIDS Bangladesh Institute of Development Studies
BIGD BRAC Institute of Governance and Development
BKMEA Bangladesh Knitwear Manufacturers and Exporters Association
BMET Bureau of Manpower, Employment and Training
BNFE Bureau of Non-Formal Education
BOD Biochemical Oxygen Demand
BOESL Bangladesh Overseas Employment and Services Limited
BPS BRAC Primary School
BRDB Bangladesh Rural Development Board
CDF Credit and Development Forum
CEGIS Center for Environmental and Geographic Information Services
CODEC Community Development Centre
CPP Cyclone Preparedness Programme
CSP Child Survival Program
DCE Discrete Choice Experiment
DGDA Directorate General of Drug Administration
DPE Department of Primary Education
DSHE Directorate of Secondary and Higher Education
DTE Directorate of Technical Education
EM-DAT Emergency Events Database
ERG Economic Research Group

xiii
xiv List of Abbreviations

FDI Foreign Direct Investment

FFE Food for Education
FIVDB Friends in Village Development Bangladesh
FLFP Female Labor Force Participation
FSSAP Female Secondary School Assistance Project
FSSSP Female Secondary School Stipend Program
GCC Gulf Cooperation Council
GCSE General Certificate of Secondary Education
GDP Gross Domestic Product
GER Gross Enrollment Rate
GIS Geographic Information Systems
GMP Good Manufacturing Practices
GOB Government of Bangladesh
GPI Gender Parity Index
GPS Government Primary Schools
GUK Gram Unnayan Karma
HC Headcount Ratio
HIES Household Income & Expenditure Survey
HSC Higher Secondary Certificate
ICRISAT International Crop Research Institute for Semi-Arid Tropics
ICT Information and Communication Technology
IFPRI International Food Policy Research Institute
IIA Independence of Irrelevant Alternatives
InM Institute of Microfinance
IRRI International Rice Research Institute
IV Instrumental Variable
JICA Japan International Cooperation Agency
JICA-RI JICA Research Institute
JOCV Japan Overseas Cooperation Volunteers
JSC Junior School Certificate
JSPS Japan Society for the Promotion of Science
KIIs Key Informant Interviews
LDV Lagged Dependent Variable
LGED Local Government Engineering Department
MDGs Millennium Development Goals
MFI Microfinance Institution
MOC Ministry of Commerce
MOE Ministry of Education
MoPME Ministry of Primary and Mass Education
MoSW Ministry of Social Welfare
 List of Abbreviations 
   xv

MRA Microfinance Regulatory Authority

NDP National Drug Policy
NER Net Enrollment Ratio
NGOs Non-Governmental Organizations
NIEs Newly Industrialized Countries
ODA Official Development Assistance
OLS Ordinary Least Squares
OTEP Oral Therapy Extension Program
PKB Prabashi Kalyan Bank
PKSF Palli Karma-Sahayak Foundation
POs Partner Organizations
PSU Primary Sampling Units
RCTs Randomized Control Trials
RED Research and Evaluation Division
RMG Ready-made Garment
RNGPS Registered Non-Governmental Primary Schools
RRF Rural Reconstruction Foundation
RWDO Reliant Women Development Organization
SAT Semi-arid Tropics
SBT Space Based Technology
SDGs Sustainable Development Goals
SIDA Swedish International Development Agency
SME Small and Medium Enterprise
SSA Sub-Saharan Africa
SSC Secondary School Certificate
SUR Seemingly Unrelated Regression
SWB Subjective Well-being
SWC Storm Warning Center
TFR Total Fertility Rate
TIB Transparency International Bangladesh
TVET Technical Vocational Education and Training
UAE United Arab Emirates
UGC University Grants Commission
UNICEF United Nations Children’s Fund
VARD Voluntary Association for Rural Development
VGF Vulnerable Group Feeding
WGI Worldwide Governance Indicator
WVS World Value Surveys
 List of Figures

Fig. 0.1 Structural transformation in Bangladesh xxv

Fig. 1.1 Real per capita GDP in selected countries (PPP) 6
Fig. 3.1 Welfare impact of subsidies 67
Fig. 4.1 An economic framework for development 77
Fig. 5.1 Destination countries of Bangladeshi migrant workers,
2015 (%) 97
Fig. 6.1 Analytical framework of female empowerment in Bangladesh 119
Fig. 6.2 Models of non-farm sector development and female
empowerment124
Fig. 10.1 Purpose of borrowing of single borrowers (Bangladesh)
and purpose of borrowing of multiple borrowers (Bangladesh) 209
Fig. 12.1 The domain-specific happiness and income relationship 245
Fig. 13.1 Shelters. (a) Multipurpose emergency shelter in Satkhira,
(b) new design of cyclone shelter, (c) excavation on the road 260
Fig. 13.2 Information sources of cyclone warning during Aila 265

xvii
 List of Tables

Table 1.1 The change in the poverty head count ratio (HC) with a
USD 1.25 a day poverty line in the Sub-Saharan
African region and in South Asian countries 8
Table 2.1 The relationship between human capital and business
performance in the garment sector 42
Table 2.2 Estimated models explaining drug manufacturer behavior
and performance 45
Table 3.1 (a) The effect of another entry on the entry of small and
medium MFIs. (b) The effect of another entry on the
entry of large MFIs 59
Table 3.2 (a) The effect of another entry on the borrowers of small
and medium MFIs. (b) The effect of another entry on
the borrowers of large MFIs 62
Table 3.3 The determinants of the number of employees 64
Table 4.1 Changes in infrastructure services indicators (1990 and 2010) 74
Table 4.2 Panel quintile estimates of the impacts of policy variables on
household outcomes 86
Table 6.1 Descriptive statistics: long-run changes in key household
and female variables 121
Table 6.2 Female school attendance regression 126
Table 6.3 Multinomial logit regression with household fixed
effects results 128
Table 6.4 OLS and village fixed effects regression results 129
Table 6.5 OLS and household fixed effects regression results 130
Table 7.1 Number of applicants and seats in public and national
universities in 2014 144

xix
xx List of Tables

Table 8.1 Determinants of job preference and job satisfaction among

Bangladeshi NGO staff aged 29 years or less in 2014 161
Table 9.1 Impacts of current and past borrowing from microcredit
sources: household fixed effects estimates with controls for
the lagged dependent variable and initial conditions
(NHH = 1509)188
Table 9.2 The impact of continuity in borrowing from microcredit
sources: household fixed effects estimates with controls for
the lagged dependent variable and initial conditions
(NHH = 1509)192
Table 11.1 Ordered probit estimates (marginal effects) of subjective
well-being227
Table 12.1 Analysis of happiness 239
Table 13.1 Cyclone Aila—damage, socio-economic status of the
affected areas, and evacuation patterns 263
Table 14.1 Trust (confidence) in institutions 281
Table 14.2 Determinants of institutional trust 284
 Introduction

The primary purpose of this book is to discuss Bangladesh’s recent eco-

nomic and social development, which may be called a Miracle, as the
country has achieved remarkable development progress under several
unfavorable conditions, including weak governance and political instability,
inequalities within the country, the downsides of rapid urbanization, and
exposure to several natural disasters.1 This book analyzes how the country
achieved such a miraculous economic and social development, and high-
lights some potential challenges that it will need to address to sustain its
economic progress. Through the analysis presented in each chapter, this
book also aims to identify those effective policy interventions that may be
replicable in other developing countries.
In 1947 when British control of India came to an end, Bengal was parti-
tioned based on religion rather than language or ethnic origin. The eastern
and western parts of Bengal became part of Pakistan (East Pakistan) and
India, respectively. It took another 24 years for modern Bangladesh to
emerge as an independent nation in 1971, after achieving independence
from Pakistan.2 While there was no significant difference in per capita
income between East and West Pakistan during the partition of India, post-

1
However, Bangladesh’s experience also raises a relevant question if there are areas where
governance does not appear to be a particularly major problem for growth (Mahmud et al.
2008).
2
Unlike Pakistan, Bangladesh drew inspiration from Bengali nationalism, and its constitu-
tion made an unqualified declaration that the country would be a secular state having no
institutional relation with religion. However, the constitution was later revised to declare
Islam as the State religion in 1988.

xxi
xxii Introduction

independence differences in economic growth between the two parts of

Pakistan were discernible, and increasingly widened in favor of West
Pakistan. For example, during the period 1959–1960 and 1969–1970, East
Pakistan’s per capita income increased by 1.5 percent per annum, compared
to the 3.6 percent increase experienced in West Pakistan, and this resulted in
a 61 percent higher per capita income in West Pakistan by 1969–1970 (Bose
1983). This disparity was also observed in many other social and economic
development indicators, ultimately strengthening secessionist arguments.3
As a country of roughly 160 million people, Bangladesh has obtained a
sustained GDP growth rate of 6 percent or higher for a decade, and has
made commendable progress toward poverty reduction through success-
ful policy intervention. First and foremost, the country, since its inception,
has gradually improved the lives of its people: starting with a per capita
income of less than 100 dollars and a poverty rate at over 70 percent in
1974 (Sen 2000), the country’s per capita income grew by 1.9 percent
per annum during 1975–2002, and at a rate of 3 percent from 1990 to
2002 (UNDP 2004). However, in the 1970s, the country was heavily
dependent on foreign aid due to a lack of domestic resources needed for
capital formation; the saving and investment rates were stuck below 5 and
15 percent of GDP, respectively (Taslim 2008).
In the late 1970s, remittances from migrant workers contributed sig-
nificantly to foreign exchange reserves, which gradually reduced depen-
dence on foreign aid and strengthened national savings (Taslim 2008).
Taslim and Weliwita (2000) suggest that low saving and investment rates
in the initial years can be attributed to a lack of entrepreneurship, but the
pool of entrepreneurs increased with the rapid growth of ready-made gar-
ments in the 1990s, and as a result investment and saving increased at
much higher rate during 1990–2000. Ahmed (2005) also suggests that
the growth performance in this period resulted from an expansion of the
investment rate as well as greater openness to international trade. In the
1990s the economy grew steadily at a rate of 5 percent per annum, and
income/consumption poverty declined substantially, and this was matched
by the country’s impressive performance on basic human development
indicators at a relatively low income.4,5

3
Bose (1983) provides a succinct and comparable account of East Pakistan’s economy
compared with that of West Pakistan between 1949–50 and 1970.
4
See Mahajan (2005) for an analysis of Bangladesh’s growth experience in the 1990s.
5
For a review of Bangladesh’s incidence of poverty during 1990s, see Muragi and Zaidi
(2005).
 Introduction 
   xxiii

During the 1990s the country’s population growth was reduced to 1.5
percent, down from the 2.4 percent observed in the 1970s. Most notably,
Bangladesh made substantial progress in human development during this
period: life expectancy at birth increased from 42.2 years in 1970 to 61.1
years in 2002, and the infant mortality rate dropped from 145 per 1000
live births in 1970 to 51 per 1000 live births in 2002 (UNDP 2004).
Over the last decade, Bangladesh has achieved a sustainable economic
growth of more than 5 percent per annum. According to the latest World
Bank report, over 15 million Bangladeshis have moved out of poverty
since 1992 (World Bank 2016).
Accordingly, the country is now on track with respect to not only the
poverty-related sustainable development goals (SDGs) but also the
“first-generation” development goals known as the millennium devel-
opment goals (MDGs). The latest available household expenditure sur-
vey (HIES) data reveal that the incidence of poverty has declined on
average by 1.74 percent during the period, exceeding the MDG target
of 1.20 percent. Indeed, the MDG target was successfully achieved; the
country reduced the number of people living below the poverty line
(24.8 percent) as well as the poverty gap ratio (6.5), according to the
latest estimate by the General Economics Division of the Planning
Commission of Bangladesh. Concurrently, there were also remarkable
achievements in terms of increased primary school enrollments, gender
equalization, decreased infant mortality rates and maternal mortality
ratios, improved immunization coverage, and a lower incidence of com-
municable diseases.
As discussed in detail in Chap. 1, Bangladesh’s development transfor-
mation was fueled by three country-specific mechanisms: the penetration
of microfinance institutions (MFIs) and other non-government organi-
zations (NGOs) into rural communities that led to relaxed credit and
other binding constraints on rural poor households; the spectacular
development of the ready-made garment industry resulting in the rapid
transformation of the economy from an agriculture-based to an industry-
oriented one; and the significant investments in infrastructure, particu-
larly in roads and bridges, which has helped to connect the formerly
fragmented spatial economy.
Although we call the country’s development miraculous, there are a
number of old and new challenges for further success in the future: the
conflict between the political parties in and out of government often
intensifies strikes and political instabilities; the country has been
xxiv Introduction

plagued by a variety of disasters such as floods and cyclones, man-made

disasters such as the collapse of the ready-made garment (RMG) fac-
tory building in April 2013, and the continued economic crises in
developed countries that significantly affect the exports of Bangladesh.
In this book, we aim to identify the critical factors behind Bangladesh’s
miraculous economic and social development as well as its potential
vulnerabilities.
This book is largely based upon the results of a three-year research
project “Empirical Study on the Risk and Poverty in Bangladesh,” con-
ducted by the JICA Research Institute (JICA-RI). In 1973, just two
years after the independence of Bangladesh, JICA started development
cooperation with Bangladesh. Since then, JICA and Bangladesh have
worked together in a wide range of areas of development, using Japanese
ODA tools such as technical cooperation, loans, grants, and Japan
Overseas Cooperation Volunteers (JOCV), with an emphasis on upgrad-
ing the transport infrastructure that connect the regions in the country,
poverty reduction through agriculture and rural development, ensuring
the supply of electricity and energy for industrial development and
improved living standards, and on human development through health-
care and education. For example, to improve the connectivity between
regions separated by large rivers, JICA has supported the Bangladesh
government in the construction of bridges, such as the Jamuna
Multipurpose Bridge co-financed by the Asian Development Bank and
the World Bank. In addition, JICA and other development partners pro-
vided financial and technical support for rural infrastructure, such as
rural road and water facilities; especially through the Local Government
Engineering Department (LGED), famous for its exceptional efficiency
(Fujita 2011), aiming at alleviating rural poverty through agricultural
production growth. Also, as discussed later in this book (see Chap. 13),
more than 100 local shelters to mitigate the damage from cyclones and
floods have been built with Japanese assistance along the coastal areas of
Bangladesh. And, Japanese grant aid also supported the installation of
meteorological prediction systems for efficient early warning of weather
events.
Regarding the governance issues that spread through every level of
the government in Bangladesh, one leading example of positive coop-
eration at the local level was a project aiming at establishing a link
between people and public servants in unions, the lowest administrative
 Introduction 
   xxv

body in Bangladesh. JICA supported the facilitation of this link-model

approach until the model was incorporated into the formal regulations
of Bangladesh. JICA has also put weight on the important role of
microfinance institutions (MFIs) and NGOs, and has supported their
operation through several cooperation projects. It was in the mid-
1990s that JICA first extended ODA loans to MFIs, an action that
financed the Grameen Bank’s early expansion. Another ODA loan
project was launched in 2014 to facilitate credit to agricultural farmers
from MFIs.

The Miracle and Challenges of Bangladesh

Observing the recent rigorous economic growth and social improvements
in the country, JICA-RI became strongly motivated to empirically review
the mechanisms behind these achievements as well as the remaining chal-
lenges, which are undoubtedly associated with JICA’s cooperation experi-
ence in Bangladesh. The research project was then designed to describe
the recent improvements in a unique way, to facilitate a more comprehen-
sive understanding of these mechanisms for future policy discussion. The
originality of this research project can be summarized by the conceptual
framework for the country’s overall development process described in
Fig. 0.1.

Infrastructure

Development of nonfarm sectors

• Urban construc on
Nonfarm Nonfarm
• RMG, Pharmaceu cal, and etc. employment income
• NGOs complemen ng government

Farm income Overall welfare improvement

Green
revolu on Human capital
investments

Beer credit
MFIs
accessibility

Exogenous changes Endogenous changes

Fig. 0.1 Structural transformation in Bangladesh. Source: Authors

xxvi Introduction

Although there are studies on Bangladesh that have focused on micro-

finance, NGOs, the development of the ready-made garment sector, the
empowerment of women, and so on, these tended to discuss each issue
separately, and few have explored how the development in each sector
relates to enable the country’s sustained development overall. Thus, what
we aim to provide in this book is a comprehensive picture of the develop-
ment of Bangladesh that is often termed a Miracle. This book is primarily
for academics and practitioners who have special interest in Bangladesh’s
development. The book will be of immense benefit to academics and post-
graduate students interested in development economics or development
issues in general, such as poverty, education, and microfinance. Each chap-
ter provides solid and high-quality evidence on each topic but also con-
nects the evidence with modern applied microeconomics. The underlying
conceptual issues and methodologies adopted in this book may go beyond
the scope of the advanced undergraduate level. To better understand the
materials covered in the book, students or less advanced readers may need
to supplement the book with additional textbooks on development eco-
nomics such as Banerjee and Duflo (2011), and on econometrics such as
Woodridge (2011) and Angrist and Pischke (2014). However, prior
knowledge of the recent topics in economic development is not required
to follow the materials presented in this book.
This book argues that Bangladesh’s remarkable success has been facili-
tated by several structural transformations: the structural change from a
farm-based to non-farm-based economy, and the transformation of
industries from domestic informal sectors to formal export-oriented man-
ufacturing sectors. Particularly, the book focuses on “industrialization
success,” “microfinance,” and “female empowerment,” as key drivers for
structural transformation and pro-poor development. The development
of infrastructure fueled the emergence of non-farm sectors in urban con-
struction and the RMG industry. The development of the RMG sector is
based on the utilization of women as a rich but underutilized workforce,
which in turn, accelerated their empowerment and their inclusion into
society’s development processes. The penetration of MFIs into villages
relaxed the binding resource constraints in rural Bangladesh. The domi-
nance of women borrowers from microfinance programs also played a
role in strengthening the status of women and materializing equitable
pro-poor growth.
Another novel feature of this book is that it focuses not only on these
successes but also on the challenges in building “resilience” against
 Introduction 
   xxvii

unsustainable urbanization, economic and political risks, and disasters.

The rapid structural transformation of the economy inevitably generated
inequalities in employment, income, and education opportunities. Also,
because of this successful transformation, rapid urbanization enhanced
people’s exposure to various risks such as traffic accidents, air and water
pollutions, infectious diseases, and natural and technological disasters.
The lack of good governance and political instability also act as hindrances
to sustained growth.
One may notice that the analytical framework of this book appears to
some extent to be silent about the role of public institutions in the process
of structural transformation, as neither the Bangladeshi government nor
bilateral and multilateral development partners such as JICA are treated as
key driving forces of recent growth. However, this does not mean that this
book disregards the efforts of these public institutions to promote the
development of the country. While focusing on the key driving forces such
as private firms, NGOs, MFIs, and those women who have started to par-
ticipate in the economic spheres of the country, this book implicitly
acknowledges the catalytic role of public institutions in facilitating the
activities of these field players.

Overview of the Book

This book discusses Bangladesh’s miracle and challenges in its economic
and social development. While the country has achieved remarkable devel-
opment progress, it continues to face obstacles including weak governance
and political instabilities, inequalities within the country, pitfalls of rapid
urbanization, and exposure to a variety of natural disasters. In addition to
this introduction, the book is composed of 14 self-contained chapters that
are based on original research, and organized into four sections: (I) eco-
nomic transformation; (II) social transformation; (III) welfare improve-
ments; and finally, (IV) the risks and challenges for further development.

I. Economic Transformation

Chapter 1. Development Transformation in Bangladesh:

An Overview
Chapter 1 provides a comparable overview of Bangladesh’s development
experience vis-à-vis countries in the region and countries with similar
xxviii Introduction

initial conditions regarding development. The authors attribute

Bangladesh’s successful development transformation, which occurred in
an accelerated manner, to mainly three country-specific mechanisms: the
penetration of MFIs and NGOs into rural communities that led to relaxed
credit constraints on rural poor households; the spectacular development
of the ready-made garment industry, which resulted in the rapid transfor-
mation of the economy from an agriculture-based to an industry-oriented
one; and the significant investments in infrastructure, particularly bridges,
which have helped to connect the formerly fragmented economy. However,
some challenges have been listed for Bangladesh: climate change and nat-
ural disasters like cyclones and floods; the downturn in export markets in
developed countries, insufficient planning and investment in infrastruc-
ture, and man-made disasters such as political strikes and instabilities. This
chapter highlights the challenges that need to be addressed in sustaining
its economic and social progress.

Chapter 2. The Miraculous Development of the Garment

and Pharmaceutical Industries in Bangladesh
In Chap. 2, the authors provide an analytical account of the phenomenal
growth of the garment and pharmaceutical sectors in Bangladesh that led
the way to economic transformation and miraculous economic growth.
Formulating and testing several hypotheses, the authors attempt to explain
that the rapid and sustained growth of these industries is less “mysterious”
than one would think, and argue that technology transfer through learn-
ing by doing benefited industrial development, paving the way for the
economic transformation of the country.
While the garment and pharmaceutical industries ostensibly differ in
many respects, the authors have shown that there is much more com-
monality than one would think, and that the two industries shared essen-
tially the same growth mechanism. Both industries began their rapid
development with massive transfers of technology in a broad sense, even
though they differed in the motivations for such transfers. The massive
transfers in technology made these previously unprofitable industries
highly profitable, which motivated affluent business persons and financial
institutions to invest in them, and highly educated youth to be attracted
to the idea of being their future leaders. These highly educated managers
in turn constructed systems in their firms to constantly upgrade manage-
ment practices, marketing, and production technology by learning from
 Introduction 
   xxix

abroad, which has kept their firms and industries competitive in world
markets. This chapter tries to demystify the rapid growth of the two
industries, arguing that economic theory can offer a consistent explana-
tion for this situation.

Chapter 3. Welfare Implications of Subsidies in the Microfinance

Industry in Bangladesh
The number of microcredit programs in poor communities has increased
dramatically, and thus competition between MFIs has intensified substan-
tially. While a set of rigorous demand-side impact evaluations of microfi-
nance programs has emerged, to the best of our knowledge there have
been few studies which rigorously and empirically examine the causes or
consequences of competition among MFIs.
In Chap. 3, the authors bridge this gap in the microfinance literature by
empirically assessing the welfare implications of intensified competition
among MFIs arising from their rapid growth in Bangladesh. The authors
estimate the impact of subsidies on microfinance coverage in Bangladesh,
and show that demand is substitutable between MFIs. Based on these
estimates the authors have deduced that only around 30 percent of all
upazilas (sub-districts) in the country are affected by subsidies, and even
when the return to the borrower is 35 percent, only 10 percent of all
upazilas experience an improvement in welfare. These empirical results
suggest that while subsidies did facilitate the rapid growth of the MFI sec-
tor in Bangladesh, microfinance programs may need to generate a
significantly—or even unreasonably high—benefit to justify subsidies. It
may be mentioned, however, that since subsidies were implemented, MFI
programs have involved a variety of benefits other than the ones consid-
ered in the analysis presented here. This suggests that we need to be care-
ful in evaluating the role of subsidies based on these empirical results.

Chapter 4. Bangladesh’s Structural Transformation:

The Role of Infrastructure
While available studies based on cross-country evidence at the macro
level suggest that there is a positive correlation between infrastructure
growth and the economic development of a country, this research is first
of this kind particularly in the context of Bangladesh that shows the
impact of infrastructure on household-level welfare. In this chapter, the
xxx Introduction

authors review the role of infrastructure in structural transformation, and

its consequences for the welfare of rural households in Bangladesh. The
authors, using both community- and household-level infrastructure
interventions data in rural Bangladesh, show that infrastructure develop-
ment enhances household welfare, and in particular, income and expen-
diture, thereby reducing the incidence of poverty. The authors argue that
public investments in roads, electricity, and financial institutions trigger
structural transformation, which increases and diversifies rural incomes,
raises consumption expenditures, reduces poverty, and increases educa-
tional achievements.
Based on empirical analysis, the authors conclude that household
income goes up by 10 percent and consumption expenditure by 4.7 per-
cent with the addition of one MFI branch in a village. They also show
that grid connectivity and road investments increase incomes and expen-
ditures, and hence lower poverty. The authors argue that welfare growth
by itself does not necessarily lead to structural transformation, but the
key to structural transformation is a sustained change in demand, pro-
duction, and employment, in particular from low productivity activities
such as agriculture to high return activities such as non-farm enterprises
and services. Their analysis also shows that infrastructural investments
raise non-farm income more than farm income. The authors conclude
that all these developments point to a structural transformation at play in
rural Bangladesh.

Chapter 5. International Migration and Remittances

for Economic Development in Bangladesh: An Overview
Labor migration, particularly international labor migration, plays a key
role in the economic development of Bangladesh. In Chap. 5, the authors
summarize the patterns and key issues related to the cross-border migra-
tion of Bangladeshi people, and also discuss the trends in international
remittance flows and their role in the economic progress of Bangladesh.
The authors explain that at the macro level, a steady flow of remittances
into the country supports its foreign exchange reserves as well as eases the
strong pressure on job creation within the country. At the micro or house-
hold level, migration can contribute to better income opportunities and
poverty reduction, mainly through an increase in consumption of com-
modities such as food and clothing. Since remittances from migrant work-
ers have positive impacts on poverty reduction and development in
 Introduction 
   xxxi

Bangladesh, these positive impacts could become longer-term and broader

if migrants and their households could use remittances for more produc-
tive purposes such as education, housing, or other purposes that enhance
households’ longer-term income prospects, and also generate positive
spillovers to other households.
The authors also discuss several policies and implications: First, the
government needs to anticipate long- and medium-term demand, and to
train and educate potential young talent to meet the demand of diversified
fields in existing and potential migrant destinations. Second, the govern-
ment and civil societies need to establish standards to ensure protection of
the increasing numbers of female migrants, particularly for those working
as domestic workers. Third, the government, with support from donors,
should strengthen financial literacy programs and training on household
financial management and coping strategies for migrants and their fami-
lies. This will also facilitate the inclusion of rural households in Bangladesh
in the financial system. The authors also suggest that provision of innova-
tive saving products, such as a diaspora bond and tax exemption facility for
expatriate workers, would further boost remittance flows and thus con-
tribute to long-term economic development of the country.

II. Social Transformation

Chapter 6. Non-farm Sector Growth and Female Empowerment
in Bangladesh
In Chap. 6, the authors examine the role of non-farm sector growth in
facilitating several female empowerment indicators such as female school-
ing, labor force participation, and delayed marriages. This chapter’s find-
ings are summarized as follows. First, the authors investigated the evolution
of female educational attainment and labor force participation in the non-
farm sector. Bangladesh has achieved the rapid industrialization of export-
oriented non-farm industries such as the garment and pharmaceutical
industries, which have provided opportunities particularly for relatively
educated women to work outside their homes. From the analysis of house-
hold panel data collected between 1988 and 2008, the authors show that
educational attainment matters to the non-farm labor market participation
of women, and that non-farm sector growth in a village facilitates their
educational attainment. However, the authors also argue that simultane-
ous improvement in female school enrollment as well as delayed marriage
xxxii Introduction

may alternatively occur as a result of unobserved changes in household-

level progressive norms. This is an area for future research in Bangladesh,
as is also suggested by the authors.

Chapter 7. Primary, Secondary, and Tertiary Education

in Bangladesh: Achievements and Challenges
The authors provide a succinct overview of the achievements and chal-
lenges of the education sector in Bangladesh, focusing on all elementary,
secondary, and tertiary education levels. As the authors argue, notwith-
standing the notable achievements that have been made in overall educa-
tional attainment as well as in narrowing the gender gap, Bangladesh has
a long way to go to improve the overall quality of education and student
performance levels that will be indispensable for gaining international
competitiveness and achieving sustainable development through the
creation of quality human capital. As they point out, the current short-
comings of this sector arise from a variety of issues, such as school drop-
outs as a result of seasonality and academic calendar mismatches with that
of farming, the low quality of teaching and learning, inadequate technical
and vocational training, and limited tertiary education facilities. They also
point to the noticeable female dropout rate—especially at the upper sec-
ondary level, and suggest that such gender disparity in dropout rates can
also be found in tertiary education. Finally, the authors suggest that to
improve access to education for rural and poor households at the tertiary
level, it is critical to increase the capacity of the universities.

Chapter 8. NGO Employments and Job Preferences of Youth:

Evidence from Bangladesh
In this chapter, the authors highlight the proliferation of non-governmental
organizations (NGOs) in Bangladesh and their potential role in creating
jobs for its youth population. The authors examined factors influencing the
job choices of youths, and looked for possible policy options that can make
NGO sector employment more attractive to the former. Based on a survey
and a stated choice experiment, the authors discuss the factors that would
make employment in this sector more attractive to prospective employees
and improve the quality of jobs for current employees, and then suggest
some policy implications. Specifically, the findings of the survey revealed
that job opportunities in the NGO sector are regarded as less attractive than
 Introduction 
   xxxiii

those in the public or private sectors, mainly due to lower wages. A key find-
ing of this research is that although the majority of highly educated young
people appear to attach importance to the level of wages when they choose
a job, they are willing to trade-off wages for non-wage benefits provided by
the NGOs, particularly for support for education and upgrading qualifica-
tions and support for health insurance. The authors argue that given many
NGOs are confronted by budget constraints, the findings of this study can
be used by the NGOs to pursue policies that promote staff welfare by effi-
ciently and effectively influencing their motivation and performance. They
also suggest that donors supporting these NGOs should insist on improve-
ments to the latter’s human resource management practices.

III. Welfare Improvements

Chapter 9. Bangladesh’s Achievements in Poverty Reduction:

The Role of Microfinance Revisited
The authors, using three waves of panel survey data collected during the
period 1991/92–2010/11, examine the role of microfinance in poverty
reduction in rural Bangladesh. The findings suggest that greater poverty
reduction can be observed for microcredit participants than for non-
participants. Also, greater poverty reduction was observed for female par-
ticipants than male participants. They show that extreme poverty decreased
by 58.9 percentage points for credit participants during the period
1991/92–2010/11, and by 55.4 percentage points for non-participants
during the same period. Using rigorous econometric framework, the
authors show that household welfare outcomes improve with microcredit
borrowing. They also show that moderate and extreme poverty decreased
by 5.1 percentage points and 8.6 percentage points, respectively, with
female participation in microcredit, whereas male participation had no
such effects on poverty.
Their results also suggest that continuous borrowers seem to have done
better than irregular borrowers over time. For example, female participa-
tion in general lowers extreme poverty by 3.6 percentage points, while
continuous participation by females lowers extreme poverty by 5.4
percentage points. Also, their analysis shows that the placement of micro-
credit programs, such as the Grameen Bank, increases household per
capita expenditures by 2.4 percent. Finally, the authors conclude that par-
ticipation in microcredit programs has been cost effective, and that it has
xxxiv Introduction

contributed to about a one-tenth reduction in moderate poverty and a

one-twelfth reduction in extreme poverty in rural Bangladesh. Noting
that this large welfare improvement over this period contributed to overall
poverty reduction in the country, the authors recommend the expansion
of microcredit-financed activities in non-farm service sectors as well as in
manufacturing activities.

Chapter 10. Is Multiple Borrowing a Bad Sign?

Evidence from Bangladesh and India
While Chap. 3 highlights the supply-side (excessive) entry issues of
MFIs, in this chapter the authors focus on the demand-side conse-
quences of MFI competition. For example, what are the consequences of
such potentially excessive competition on the demand side? While micro-
credit participation can have a positive impact on household welfare,
borrowing from multiple sources can be problematic for borrowers, par-
ticularly if such borrowing is made for un-productive purposes or for
paying back loan installments, which could result in further indebted-
ness. Often it is argued that people tend to borrow from multiple sources
due to the small and inflexible character of most MFI loans. Examining
household panel data from Bangladesh and India, and comparing the
unique settings of microcredit programs in these two countries, the
authors illustrate the causes and nature of overlapping borrowing.
Empirical findings from Bangladeshi data seem to show consistently
“good” overlapping borrowing and are suggestive of the use of small
and inflexible loans from multiple MFIs to satisfy a large borrowing
demand.
In contrast, the overall findings from India may support the interpreta-
tion of overlapping borrowings as a Ponzi scheme or that it misses targets.
The authors conclude that such observed differences between Bangladesh
and India might be attributed to the differences in corporate governance
in microfinance in these countries. While MFIs in Bangladesh, except
Grameen Bank, are non-profit NGOs, a significant proportion of Indian
MFIs are operated by for-profit commercial financial institutions. The
authors suggest that “mission drift,” i.e., a tendency by numerous MFIs to
extend larger-than-average loans in the process of scaling-up, could explain
the potential increase in the average loan size and overlapping borrowing
in these contexts.
 Introduction 
   xxxv

Chapter 11. Urbanization and Subjective

Well-Being in Bangladesh
Like other developing countries, urbanization in Bangladesh has been rising
at a relatively faster rate. While urbanization can bring immense benefit, the
downside of increased density in terms of congestion and pollution cannot
be ignored. These effects get relatively less attention in the policy arena, but
the associated risks such as environmental pollution can have impact on
human well-being. This chapter examines the determinants of life satisfac-
tion among urban dwellers in two densely populated districts of Bangladesh,
to understand particularly how the urban risk factors, e.g., environmental
risks, affect individuals’ subjective well-being (SWB). The authors analyze
self-reported life satisfaction or happiness data as a function of perceived
environmental quality and risk perceptions, using other conventional eco-
nomic and non-economic variables as controls. Their findings suggest that
perceived environmental quality as well as road safety significantly affects
SWB. More interestingly, the effect of an objective measure of neighbor-
hood water quality appears to diminish when perceived household water
quality is taken into account. The authors suggest that these results have
important implications for environmental policies. Furthermore, pointing
to the results that road safety concerns have a significant effect on well-
being, the authors suggest that enhanced road safety can potentially act as
low-cost insurance for people and hence welfare enhancing.

Chapter 12. Happiness in Life Domains: Evidence

from Rural Bangladesh
This chapter is a complementary one to Chap. 11, and focuses on rural
Bangladesh. In this chapter, a two-layer approach is adopted to investigate
SWB in rural Bangladesh, where overall happiness is assumed to be the
aggregate of six types of domain-specific happiness components or
different aspects of life: work/job situation, financial/economic situation,
house condition, available leisure, social life, and married life. The results
suggest that income explains a large part of the variation in overall happi-
ness, and that income is also closely related with various domain-specific
happiness including non-economic domains. The results have important
implications, suggesting that income and happiness move hand-in-hand in
developing countries like Bangladesh, and that to enhance happiness
effectively in these societies, it is important to fill any gap in happiness in
the economic domain by improving material well-being.
xxxvi Introduction

IV. Risks and Challenges

Chapter 13. Challenges for Reducing the Number of

Disaster Victims in Bangladesh
Bangladesh remains vulnerable to various disasters, including the threats
from climate change. In this chapter, the authors begin by providing an
account of Bangladesh’s disaster vulnerability, then outline their under-
standing of the country’s efforts for disaster management including inher-
ent challenges, and finally discuss the potential of the newly introduced
programs to reduce the disaster vulnerability of the country. The authors
mainly focus on vulnerability in terms of human lives and poverty during
large-scale cyclones, and attempt to uncover the socioeconomic mecha-
nisms behind the sub-optimal usage of emergency shelters.
By examining the survey data collected in the areas affected by Cyclone
Aila, for example, the authors found that poor accessibility of shelters, the
inaccuracy of early warning systems, the risk of theft, and the loss of
income-earning opportunities caused people to hesitate to evacuate to the
shelter. They also show, using regression analysis, that rising social capital
has significantly increased the likelihood of evacuation, presumably by
decreasing the perception of theft. The authors conclude that the propen-
sity to evacuate is significantly associated with the level of access to the
early warning system and the emergency shelters.
The authors then suggest several policy options. These include the
establishment of multi-purpose shelters in appropriate locations, improve-
ments in early warning systems using space-based technology, and a focus
on the development of social capital to promote cooperation among com-
munities. Finally, the authors suggest that as the design and development
of effective disaster management policies requires a broad range of knowl-
edge, such as risk awareness, knowledge of existing natural hazards and
vulnerabilities, and thematic and technical competencies, human resource
development remains the key for government policy in this area.

Chapter 14. Governance Challenges: Institutional

Quality and Trust in Bangladesh
As noted, Bangladesh has achieved remarkable development transforma-
tion despite weak institutions and declining quality-of-governance indica-
tors (World Bank 2010). The authors focus on governance indicators in
 Introduction 
   xxxvii

Bangladesh, and examine the empirical relationship between corruption

and institutional trust. The perception that public officials and politicians
are corrupt may also influence lower levels of society. Using responses
from a nationwide survey of households, the authors investigate the
empirical relationship between (perceived) corruption and institutional
trust, and find that perceptions of corruption foster distrust towards pub-
lic institutions. The authors suggest that the findings have important pol-
icy implications given the assertion that institutional trust can potentially
shape generalized trust in the society, which is important for social and
economic development. Hence, the authors argue that governance issues
remain a fundamental challenge for the country’s future development
processes.

Faculty of Economics Yasuyuki Sawada

University of Tokyo
Tokyo, Japan

Bangladesh Institute of Development Studies Minhaj Mahmud

Dhaka, Bangladesh

Japan International Cooperation Agency

Research Institute Naohiro Kitano
Tokyo, Japan

References
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of the Way to Fight Global Poverty. New York: Public Affairs.
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Fujita, Y. 2011. What Makes the Bangladesh Local Government Engineering
Department (LGED) So Effective: Complementarity between LGED and Donor
Capacity Development Support. JICA-RI Working Paper No. 27. Tokyo: JICA
Research Institute.
xxxviii Introduction

Mahajan, S. 2005. Analysis of Growth Experience. In Transforming Bangladesh

into a Middle-Income Economy, ed. S. Ahmed, 91–129. Washington, DC: The
World Bank.
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Governance: The Political Economy Aspects of Bangladesh’s Development Surprise.
Commission on Growth and Development, Working Paper 22. Washington,
DC: The World Bank.
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Aid: An Alternative Explanation. Journal of Economic Development 25 (1):
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Taslim, M.A. 2008. Governance, Policies and Economic Growth in Bangladesh.
In A Ship Adrift: Governance and Development in Bangladesh, ed. Nurul Islam
and M. Asaduzzaman, 137–178. Dhaka: Bangladesh Institute of Development
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South-Western College Publication.
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Monitoring. http://iresearch.worldbank.org/PovcalNet. Accessed June 2016.

Yasuyuki Sawada is a Professor in the Faculty of Economics at the University of

Tokyo, Japan, and a former visiting fellow of JICA Research Institute, Japan. His
research fields are macro- and micro-development economics, economics of disas-
ters, and field surveys and experiments. Previously, he did part-time research work
in a variety of institutions, such as Stanford University; the World Bank; Bangladesh
Institute of Development Studies (BIDS); BRAC Research and Evaluation
Division (RED); and Pakistan Institute of Development Economics (PIDE). He
holds a PhD degree in Economics from Stanford University, USA.

Minhaj Mahmud is a Senior Research Fellow of the Bangladesh Institute of

Development Studies (BIDS) and Visiting Scholar of the JICA Research Institute
(Tokyo). Earlier he has held academic and research positions respectively at Queens
University Belfast, Keele University, BRAC University, Jahangirnagar University
and BIDS and BRAC Institute of Governance and Development (BIGD). He has
also held visiting academic appointments at Jawaharlal Nehru University, University
of Tokyo, and University of Dhaka. His field of research is behavioral economics,
 Introduction 
   xxxix

development economics, experimental economics and political economy issues.

He holds a PhD degree in Economics from the University of Gothenburg, Sweden.

Naohiro Kitano is Director, JICA Research Institute, Japan International

Cooperation Agency (JICA). Prior to the current assignment, he served various
positions, including Representative, Beijing Representative Office, former Overseas
Economic Cooperation Fund, Japan (OECF), Associate Professor, Graduate
School of Economics, Kyoto University, Director General, Development Assistance
Department II, Japan Bank for International Cooperation (JBIC), Director
General, East and Central Asia and the Caucasus Department, JICA and Deputy
Director, JICA Research Institute. He obtained Ph.D. (City and Regional
Planning) from Cornell University. His publications include: Kitano, N., and
Y. Harada. “Estimating China’s Foreign Aid II: 2014 Update.” JICA-RI Working
Paper No. 131. (2016).
 PART I

Economic Transformation
 CHAPTER 1

Development Transformation in Bangladesh:

An Overview

Minhaj Mahmud, Keijiro Otsuka, Yasuyuki Sawada,

and Eiji Yamada

Introduction
Bangladesh began its journey as an independent country in December
1971. At the time, its long-term economic prospects were questioned by
development pundits, who deemed it to be a test case for development
(Faaland and Parkinson 1976). Such negative perceptions of Bangladesh’s
development prospects were fostered by weak initial conditions within the
country: problems such as high population density, the dominance of stag-
nant and unproductive agriculture, the prevalence of malnutrition, a lim-
ited natural resource base, under-developed infrastructure, and exposure

M. Mahmud
Bangladesh Institute of Development Studies, Dhaka, Bangladesh
K. Otsuka
Kobe University, Kobe, Japan
Y. Sawada (*)
Faculty of Economics, University of Tokyo, Tokyo, Japan
E. Yamada
JICA Research Institute, Tokyo, Japan

© The Author(s) 2018 3

Y. Sawada, M. Mahmud & N. Kitano (eds.), Economic and Social
Development of Bangladesh, DOI 10.1007/978-3-319-63838-6_1
4 M. MAHMUD ET AL.

to frequent natural disasters (Hossain et al. 2012). In the 1970s,

Bangladesh was ranked near the bottom of all the economic and social
indices that looked at factors such as income, poverty, child mortality, and
school enrollment rates. However, over subsequent decades, the country
gradually improved the lives of its people and the social status of women
through achieving a steady growth in per capita income. Accordingly, the
initial negative perception of the Bangladeshi economy has been gradually
replaced with cautious optimism in global development circles. For the last
decade, Bangladesh has achieved sustained economic growth of more than
5% per annum. In terms of poverty reduction, human development, and
social indicators, the growth in its economy has enabled substantial prog-
ress toward the achievement of the millennium development goals.
According to the latest World Bank report, over 15 million Bangladeshis
have moved out of poverty since 1992 (World Bank 2016). Accelerated
growth in the last decade has paved the way for the country to achieve
(lower) middle income status.
The key to Bangladesh’s success lies in the reallocation of relatively low-­
skilled laborers from the agricultural to the non-agricultural sector, and
from rural to urban areas; this is representative of the inter-sectoral
­transformation common to other Asian countries (Hossain et al. 2012;
Otsuka 2007). The “green revolution,” that is, the adoption of irrigation
and high-yielding rice seeds together with the introduction of chemical
fertilizers, played a central role in breaking the vicious cycle of poverty,
provided alternatives to farming as a major occupation, and curbed the
tendency to sacrifice children’s schooling in favor of work in the fields.
Agriculture provided the dominant source of income and funds for physi-
cal and human capital investment. Moreover, the growing farm–non-farm
linkages created pro-poor job opportunities particularly in the non-farm
sectors. In this context, Bangladesh’s experience was similar to other Asian
countries (Otsuka et al. 2008; Sawada and Lokshin 2009). The govern-
ment’s role in providing physical and institutional infrastructure also facili-
tated the process of structural transformation from farm-based to
non-farm-based economies.
The achievement of Bangladesh’s development transformation in such
an accelerated manner was fueled by three rather country-specific mecha-
nisms. First, the penetration of MFIs into rural communities relaxed credit
constraints on rural poor households, thereby facilitating development
transformation. Second, export-led manufacturing growth led by the
 DEVELOPMENT TRANSFORMATION IN BANGLADESH: AN OVERVIEW 5

RMG sector as well as the rapid expansion of international migration

accelerated structural transformation. Finally, unlike many of the countries
in Asia and Africa, Bangladesh is among the world’s most populated coun-
tries; this indicates a possibility for high-returns to investment in infra-
structure, which tends to be characterized as a public good. Lack of
ethno-social fragmentation—compared to countries such as Pakistan,
India, or Sub-Saharan Africa—also facilitated the transmission of the ben-
efits of new technology and human development across diverse population
groups, including the poor and the poorest; the dense clusters of the gar-
ment industry are evidence of this development.
The positive feedback process of industry growth has also been stimu-
lated by the pecuniary externalities of growth in export-oriented manufac-
turing, and the expansion of industries catering to domestic demand.
However, even though Bangladesh has been developing successfully, weak
governance,1 potential natural disasters like cyclones and floods, techno-
logical disasters such as the collapse of buildings, and man-made disasters
such as economic crises and political instability can be serious risk factors
that may constrain continuous economic growth (Sawada et al. 2011;
Sawada 2007).
This chapter provides an overview of Bangladesh’s miraculous develop-
ment experience from the viewpoint of industrial and societal transforma-
tion. In doing so, it compares the case of Bangladesh both with other
countries in the region, and with countries that have progressed from
similar initial conditions or were at a similar stage of development. Finally,
the chapter points to some of the important challenges to achieving sus-
tained economic progress.

Overall Growth and Poverty Reduction

When Bangladesh became politically independent in the 1970s, its develop-
ment prospects were undermined by high population density, the domi-
nance of small-scale and unproductive agriculture, prevalent malnutrition,

1
Bangladesh’s performance in terms of the Worldwide Governance indicators (i.e., control
of corruption, government effectiveness, political instability, the absence of violence, the rule
of law, voice and accountability, and regulator quality) remained low for decades, and in
some cases, below average for lower income countries (see Mahmud 2011; Hasan et al.
2015).
6 M. MAHMUD ET AL.

a limited natural resource base, under-developed infrastructure, and expo-

sure to frequent natural disasters. In terms of almost all the economic and
social indices such as income, poverty, child mortality, and school enrollment
rates, Bangladesh was ranked as one of the poorest countries in the world.
In the 1980s and 1990s, however, the country gradually improved the
income levels of its people. Figure 1.1 depicts the trajectory of real GDP
per capita for six selected countries, Bangladesh, India, Pakistan, China,
Brazil, and the Democratic Republic of Congo, from the 1950s to the pres-
ent (for Bangladesh, the series starts from 1959). As the data show,
Bangladesh has achieved sustained economic growth of more than 5%
per annum. Continuous and accelerated growth in income has enabled the
drastic reduction of poverty.

10

9.5

8.5

7.5

6.5

6
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Bangladesh Brazil China
DR Congo India Pakistan

Fig. 1.1 Real per capita GDP in selected countries (PPP). Data source: PWT 9.0
from Feenstra et al. (2015), “The Next Generation of the Penn World Table”
American Economic Review 105(10), 3150–3182. Note: The vertical axis is real
GDP per capita (in log. form)
 DEVELOPMENT TRANSFORMATION IN BANGLADESH: AN OVERVIEW 7

This trend is reflected in the comparison of the headcount ratio of pov-

erty (HC) in Bangladesh with the current poverty line of USD 1.25 per
day (Chen 2015) in the East Asia-Pacific Region. This has dropped from
about 80% to 7% over the last 30 years. This recent poverty reduction
trend is also evident in the rest of South Asia, where the HC dropped from
54.1% in 1990 to 24.5% in 2011. And Bangladesh, which used to be
poorer than the states of Sub-Saharan Africa (SSA), has achieved poverty
reduction at a speed which is faster than in the case of SSA.
Table 1.1 shows the progress in reducing HC among South Asian
countries, using the USD 1.25 a day international poverty line. The last
column of Table 1.1 shows the percentage decline in HC over 25 years
using a simple geometric extrapolation method. It is easy to verify the fact
that South Asian economies have basically achieved the first target of the
millennium development goals (MDGs)—to halve, between 1990 and
2015, the HC of those living below the USD 1.25 a day poverty line.
However, there are two exceptions, Bangladesh and India, where HC has
been reduced by 44.2% and 43.1%, respectively, which is less than the tar-
get rate of 50%. Nevertheless, in contrast, the poverty reduction rate for
the whole Sub-Saharan African region has been much slower, at the rate
of 30.4%. During the last three decades, the HC in this region has remained
high, corresponding to the fact that these SSA countries have been caught
in the poverty trap.
The sustainable development goals (SDGs) list “no poverty” as the
very first goal: “By 2030, eradicate extreme poverty for all people every-
where, currently measured as people living on less than $1.25 a day.” We
follow the World Bank’s (2014) operational numerical target to end
extreme poverty by 2030, which is, achieving 3% or less of global
­population living below USD 1.25 a day. The feasibility of fulfilling this
operational poverty target in Asia can be illustrated by computing the
necessary income growth in achieving this target for Bangladesh. For this,
the concept of exit time, given as the time in which a person with income
y below poverty line z will exit the poverty situation, is used (Morduch
1998; Sawada and Estudillo 2012). The exit time for a person with y0.03, t
to exit the USD 1.25 a day poverty line by 2030 can be defined as:

ln ( z ) − ln ( y0.03t )
2030 − t = , (1.1)
ln (1 + g )
8 M. MAHMUD ET AL.

Table 1.1 The change in the poverty head count ratio (HC) with a USD 1.25 a
day poverty line in the Sub-Saharan African region and in South Asian countries
Country HC in the years HC in the Change in HC
around 1990 latest year

(1) (2) HC (3) (4) HC (3)–(1) [(4)–(2)]/ 25 years

Year (%) Year (%) Year (2): % change trend of
(HC0) (HCT) interval in HC change in
(T) HC (%)
(ΔHC25)

Sub-Saharan 1993 60.84 2011 46.85 18 −22.99 −30.44

Africa
South Asia 1990 54.09 2011 24.50 21 −54.71 −61.05
Bangladesh 1988 71.61 2010 43.26 21 −39.59 −44.22
India 1987 53.59 2009 32.64 22 −39.09 −43.08
Maldives 1998 25.59 2004 1.48 6 −94.22 −100.00
Nepal 1984 78.15 2010 23.74 25 −69.62 −68.31
Pakistan 1990 64.71 2010 12.74 20 −80.31 −88.89
Sri Lanka 1990 15.01 2012 3.46 22 −76.95 −81.13

Data source: PovcalNet, the on-line tool for poverty measurement developed by the Development
Research Group, World Bank (accessed June 2016 http://iresearch.worldbank.org/PovcalNet/)
Notes: (1) HC estimates are based on USD 1.25/day in 2005 PPP. All country-specific HC is calculated
based on the consumption-based poverty index, except for that of Nepal in 1984
(2) Estimation of 25-year poverty reduction trend, ΔHC25:
For a given time interval T starting from the initial year 0, note that the T-years poverty reduction trend
in %, ΔHCT, can be expressed as,

 HCT 
∆HCT =  − 1  × 100 (1)
 HC0 

where, HCT is the HC in the latest year, HC0 is the HC in the initial year. Then, the 25-years poverty
reduction trend (%), ΔHC25 in the last column of Table 1.1, is given by:

  HC  25/T

∆HC25 =   T
 − 1  × 100 (2)
  HC0  
 
Note that the calculation above involves geometric extrapolation (Shryock et al. 1980) of T-years change
in HCs for 25 years. Using geometric extrapolation is logically reasonable because this extrapolation
never exceeds the theoretical lower bound and the upper bound of ΔHCT (which are −100 and∞) for any
HCT 1 + pT
positive values of C0, and HCT. Since = , where pT is growth of population under a poverty
HC0 1 + nT
line in T years and nT is total population growth during the same period, the extrapolation in (2) is
equivalent to taking the ratio of the extrapolated below-poverty-line population growth to the extrapo-
lated total population growth
 DEVELOPMENT TRANSFORMATION IN BANGLADESH: AN OVERVIEW 9

Where: y0.03 shows the income level of a person whose income in year t is
within the lowest 3% of the population.
In Eq. (1.1), the growth rate, g, is the rate of change in income at
which a person will be able to rise above the USD 1.25 a day poverty line
by 2030. Sawada (2016) calculated the necessary income growth rate, g,
to achieve the operational target 1 of the SDGs, based on Eq. (1.1). We
can test the feasibility of this target for Bangladesh, which was on the
threshold of achieving the first target of the MDGs. Based on the values
calculated for Bangladesh in 2010, the necessary income growth rate
becomes 2.30% per year (Sawada 2016). According to the World Bank’s
World Development Indicators, the average growth rate of Bangladesh’s
real GDP per capita was 4.5% per year between 2006 and 2010, and 4.8%
per year between 2011 and 2015. Even if the income growth rate of the
poorest 3% is half of the income growth rate of the overall population, the
poorest 3% would likely have exited poverty by 2013. Hence, we can con-
clude that 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.

Development Transformation in Bangladesh

Industrialization and Structural Transformation

Behind Bangladesh’s success in reducing poverty and improving social
indicators, there has been a continuous structural transformation from an
agriculture-based economy to a non-agriculture based economy in terms
of value added and employment. While it is impressive that the GDP gen-
erated by the industrial sector has recently surpassed that of agriculture, it
is also clear that the service sector is much larger than the industrial sector
in terms of both GDP and employment share. The productivity of this
sector, however, is low as it is dominated by small-scale traditional busi-
nesses, such as vending and rickshaw services. If labor moved from the
agricultural sector into industries characterized by labor-intensive but
advanced technologies, we would expect remarkable improvements in
social indicators, such as in the poverty indices (Otsuka et al. 2008). But
this has not necessarily been the case in Bangladesh. On the other hand,
while it is true that the population in both the rural and urban sectors
grew, the latter grew at a faster rate than the former. The case of Bangladesh
may thus be regarded as being like that of post-World War II Japan, where
10 M. MAHMUD ET AL.

inter-sectoral labor relocation also facilitated faster growth. The Japanese

case, however, was industry led rather than service sector led as it is in
Bangladesh.2
Notwithstanding this difference in the engine of growth, agricultural
development played an important role in Bangladesh. Policy reforms and
investments in agricultural research facilitated the progress of the green
revolution, which, for example, saw the adoption of high-yielding crop
varieties combined with better irrigation infrastructure, more efficient
market institutions, and mechanization. Agricultural modernization char-
acterized by the introduction of labor-intensive cultivation methods (in
the crop sector) has led to pro-poor shifts in rural factor markets such as in
the land tenancy market (David and Otsuka 1994). There is some evi-
dence that in addition to the increase in land under tenancy, there has also
been a pronounced shift from share-tenancy to fixed-rent leasehold ten-
ancy. Surprisingly, a rise in the share of “pure tenancy” can also be observed.
Such changes are pro-poor because the poorest of the poor are the landless
agricultural workers who engage in such simple tasks as weeding, trans-
planting, and harvesting. In contrast, tenants are engaged in care-intensive
activities and, hence, they are better-off than laborers. The evidence sug-
gests that landless and marginal farmers may have been the major benefi-
ciaries of these changes in rural institutions. Additionally, the transformation
of the tenancy market coincided with the “feminization” of agriculture
fueled by the penetration of MFIs, which provide loans exclusively to poor
women in rural households, into the rural area. As a result, the agricultural
sector played a key role in reducing Bangladesh’s poverty from 48.9% in
2000 to 31.5% by 2010, even though over 87% of rural people still earn
part of their income from agricultural activities (World Bank 2016).
Conversely, the emergence of labor-intensive export industries, espe-
cially the RMG industry, became the center of structural change in the
economy. In the 1970s, Bangladesh had no modern industry. The RMG
industry’s share of exports was still only a few percent in the early 1980s,
but by the late 2000s it had reached more than 75%. The industry has
been generating more than USD12.5 billion in export revenue with
women accounting for 80% of its 3.6 million workers (World Bank 2012).

2
Esteban-Pretel and Sawada (2014) studied the structural change in Japan’s post-World
War II era of rapid economic growth. Following Hayashi and Prescott (2008), they adopted
a two-sector neoclassical growth model with government policies. The study clearly shows
that the inter-sectoral labor flows played a crucial role in Japan’s rapid postwar growth.
Another random document with
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 In the general section of China where he lived he made many
journeys. Over that part of Shantung situated to the east of the
Yellow River he traveled often, and far and wide. Several times he
visited Peking. Once, as we have seen, he went down the Grand
Canal, to Nanking, and the lower Yangtse. Frequently he steamed
up and down the coast to Shanghai, and once as far south as
Ningpo. But those immense and populous provinces situated in the
west and south of China he never visited, not because he was not
interested in them, or could not afford the expense, but because he
could not spare the time. In the spring of 1868 the “Shenandoah,” an
American war steamer, came to Tengchow on its way to Korea,
where search was to be made for any survivors that might remain
from the “General Sherman,” lost there two years before. The
“Shenandoah” wanted an interpreter, and by general consent the
duty seemed to fall on Dr. Mateer, so that he fell constrained to
accept, though the health of his wife and other affairs rendered this
very inconvenient. The cruise lasted about six weeks, and carried
them to several places on the west coast of Korea, and among these
to the river Pyeng Yang, since so familiar to readers of missionary
journals, and to those who followed the Japanese troops on their
march against the Russians in the recent war. That was then a
“forbidden land” to foreigners, and the expedition found it difficult to
get into peaceable or forcible communication with officials or other
natives, and accomplished almost nothing. In the light of the fuller
present knowledge of that politically unhappy but religiously hopeful
country the observations of the interpreter or of any of the other
persons belonging to the expedition are now of little interest.
Dr. Mateer came back to the United States only three times on
furlough during the more than forty-five years that intervened
between his sailing for China in 1863 and his death. The first of
these absences from China began in May, 1879, and ended about
the first of January, 1881. Under the rule of the Board of Missions he
was entitled to a furlough home long before that time, but he felt that
he could not sooner leave his work. He also held the opinion that
there is usually no sufficient reason to justify this privilege to a young
missionary so early as is established custom. His wife, on account of
health, had preceded him some six months. He came by way of
Japan, and brought with him two Mills children, their mother having
died. They crossed the Pacific on a slow vessel, but the voyage was
delightful, and in about as great a contrast as is possible with his
experience on the ship which originally carried him to China. He was
made more than comfortable and the captain went out of his way in
order to show him courtesies. On arrival in the United States his time
was spent in the main as by other home-coming missionaries,—in
family reunions, visiting here and there, preaching to churches,
addressing ecclesiastical meetings of various sorts, seeking recruits
among theological students, and other engagements,—the total of
which so completely fill up the time that little is left for real rest and
recuperation. To this customary list he added two other items,—a
period spent in attending medical lectures at Philadelphia, and a
hasty trip across the Atlantic to England and to Paris.
His second furlough extended from July, 1892, until October, 1893.
He went and came by the Pacific route, and was comfortable on
these voyages. Julia was with him. During that sojourn in the United
States, in addition to the occupations usually engrossing the time of
a missionary on furlough, he went to Chautauqua and studied
Hebrew in order to fit himself better for revision work. He also made
at the World’s Fair at Chicago that exhaustive examination of
machinery, and especially of electrical appliances, of which Dr.
Corbett, in the quotation previously given, has told us. One of the
greatest pleasures that came to him on this leave of absence was
the privilege of once more seeing his mother, then advanced in
years. In the last of his letters to her that have come down to us he
mentions that he and Julia are at the writing just going into the
harbor at Chefoo, and he concludes by saying: “We are very glad
that we are at the end of our journey, and back again in China. This
is where our work lies, and this is where we ought to be.” It was on
his arrival at Tengchow that his students gave him that royal
welcome already described.
On September 25, 1900, he was married to Miss Ada Haven, who
had been for many years a missionary of the American Board at
Peking, and as such was recognized as an accomplished Chinese
scholar and a successful and highly esteemed teacher in the
Bridgman School. Her engagement to Dr. Mateer briefly antedated
the siege of Peking, and she was one of the company of foreigners
of whose fate the western world waited with bated breath to hear
during the midsummer of 1900. In her book, “Siege Days,” she has
given an inside view of the experiences of herself and of many
others, and as such it has not only a passing but also a permanent
interest and value as a record of that remarkable episode of
madness on the part of the “old” China. After the relief of the city and
a little season of recuperation from the strain of the siege, Miss
Haven came down to Chefoo, and the marriage took place in the
Presbyterian church at Chefoo, Dr. Mateer’s old friend, Dr. Corbett,
performing the ceremony. As his wife, Ada rendered him valuable
assistance, by taking part in the preparation of the smaller book of
“Mandarin Lessons.” She also greatly helped the committee on the
Mandarin version of the New Testament by making a Greek and
English concordance of their first revision. For eight years they two
walked together; and he had from her in his literary labors, as well as
in other ways, an inspiration and often a direct help of which the
world outside of their home can know very little.
His last furlough extended from June, 1902, to August, 1903. Dr.
and Mrs. Mateer came to the United States by way of the Siberian
railroad and the Atlantic, so that when he arrived in China on his
return he had a second time gone around the world. In a letter
written to me in April, 1908, he says, “We went home seven years
ago by the Siberian railroad, and it was exceedingly comfortable,—
much more so than traveling in an ordinary Pullman car.” Perhaps in
the interval that had elapsed the recollection of the discomforts that
attended the first stage of that journey had somewhat faded from his
memory; or he may have had in mind only the part that lay through
Siberia proper and in European Russia. A Chinese naval officer who
had often come to his study to talk over various matters had
expressed a desire to take him and his wife over to Port Arthur in a
gunboat when they started on their homeward route. The officer
intended by this only one of those empty compliments which
Orientals are accustomed to pay, without any thought that the offer
involved would be accepted. Dr. Mateer was himself the soul of truth
and honor, and, being such, took what this officer said to him at its
face value. So, in this case, he sent word of acceptance of the offer,
but an answer came back that “after all, it would be inconvenient to
take them just then, and that orders had been left with a Chinese
junk to take them.” The junk could not come in to shore and they had
to go out in a rowboat. When they went aboard, they found that there
was no cabin,—nothing, indeed, at their command but a little hold
about breast-high, stowed full of Chinese baggage, some of it
consisting of malodorous fish and onions. In order to make room for
them, the onions were piled in stacks just above on the deck; but
even this change left for human occupation merely about a cube of
five feet. The boat was crowded with Chinese passengers, and it
poured down rain, from which the Mateers could protect themselves
only by hoisting an umbrella over the hatchway which was at the
same time their only source of ventilation. It was not until the third
day that they reached Port Arthur.
It was characteristic of Dr. Mateer that under these conditions he
spent every moment of daylight in putting final touches on the
manuscripts of the “Technical Terms” and of the “Chemical Terms,”
so that these might be mailed immediately to the printer. They came
very near missing the train, and if this had happened they would
have been compelled to wait a week for another opportunity. The
railroad had but recently been completed at that end, and no regular
schedule as to service had yet been established; but with many
delays and with various inconveniences, after a week, they reached
the point at which they overtook an express train bound for Irkutsk.
This was luxury indeed, compared with the beginning of the journey.
From Irkutsk onward the commendatory language of Dr. Mateer was
justified by the accommodations. The Mateers visited Moscow and
St. Petersburg; then came on to Berlin, and thence, successively, to
Düsseldorf, Cologne, Paris, and London, the latter place brilliant with
preparations for the belated coronation of King Edward, which took
place while they were there. From Liverpool they crossed the Atlantic
to Halifax, and then entered on their American vacation.
A part of the furlough he spent in efforts to secure endowment for
the Shantung College. In the prosecution of this work he visited
various churches, and in Pittsburg he remained for six weeks. It was
during this furlough that he sat as a commissioner from his
presbytery in the General Assembly at Los Angeles. Among other
celebrated spots which they included in their itinerary was the
Yosemite Valley. But the part of the furlough that probably afforded
them both the most unalloyed pleasure was spent in a visit to the
region of the “old home.” His wife, in a letter, tells the story thus:

Ever since our marriage it had been the cherished plan of

my husband to take me on a wedding journey when we got to
America,—a carriage journey, to see all the spots familiar to
his childhood. By planning with this in view we were able to
spend the anniversary of our wedding in Mechanicsburg, with
Calvin’s cousins. One of these made a feast for us. Many
were the reminiscences exchanged,—a happy binding of past
and present. In a day or two we started on the long-promised
journey, in a “one-horse-shay,” a journey of several days, our
stops at noon, and again overnight, always being with friends
of his childhood. But the friend to which most of all he wished
to introduce me was his beloved old Long Mountain; and as I
looked first at that, and then at his glowing face, I saw
whence, next to his Bible and catechism, he had drawn his
sturdy love of truth and freedom. Either on that journey, or on
subsequent trips from Mechanicsburg or Harrisburg, we
visited all the localities familiar to his childhood,—his
birthplace, where the wall that used to seem so high to him
now appeared so low to the white-bearded six-footer,—the
brook where the clover mill used to stand,—the Silver Spring
church, where he was baptized, and its adjoining graveyard,
where lie many of his old Scotch-Irish ancestors, under quaint
inscriptions.... It rained hard the day we visited the battle field
of Gettysburg. This trip we took in company with an old friend
of Calvin’s, a veteran of the war. Not less interesting were the
surroundings of his second home, the “Hermitage.” Almost
more noteworthy than the house was the big “bank-barn,”—
the mows for hay, the bins for grain, the floor where he used
to ride on horseback around and around over the grain in
order to thresh it, the old workbench, and, above, the
 swallows’ nests. The rush of memory was so strong that the
white-haired missionary could not keep back the tears. He
showed me the little old schoolhouse, the stream near by, the
old flour mill, within an inner room of which he and his boy
companions used to meet on winter evenings around a “ten-
plate” stove for debate. Another place of great interest was
the old haunted churchyard, the fence of which he had
mounted to fight his battle with the ghosts, and from which he
got down a conqueror, never more to fear the face of man or
devil.

But the most sacred of all the spots which they visited was the
grave of his mother, in the cemetery at Wooster, Ohio.
From Seattle they sailed to Japan, and thence after a short season
of fellowship with the venerable translator of the Old Testament,
Bishop Schereschewsky, and with other friends, they came back to
Tengchow.
 XV
FACING THE NEW CHINA

“China is a great land, and has a great future before it. I am thankful that I
have had the opportunity to do what I could to make it what it ought to
be. The Church of God is bound to have a great triumph here, with
great trials in the process.”—letter to james mooney, November
27, 1906.

When Dr. Mateer wrote that letter, the new China had not come.
Nor has it yet appeared. The utmost that can be said confidently is
that there are signs of a spring thaw in the vast sheet of ice that for
so many centuries has held that country in fetters. Some great rifts
can be seen in the surface and sounds that are indicative of
movement can be heard. People who stand on the shore, and some
of those who are on the ice, are shouting, “Off at last!” It seems
scarcely possible that the apparent thaw shall not continue until the
streams are cleared and the land is warmed into new life by the
ascending sun. But how long it will be before this is accomplished it
is almost useless for the best-informed men to attempt to forecast.
When the ice does really go, will it be with a sudden rush that will
carry with it great injury to much that is well worth preserving? Or will
the change come so quietly and gradually that the ice will sink
without a tremor, and the frost will gently melt away into waters that
only freshen the soil? Probably the new China is not far away; as
sure as progress is the law of civilization and enlightenment in the
world, it cannot be postponed much longer. Dr. Mateer lived long
enough to recognize the signs of its approach, and while he was
glad because of this, he also was deeply anxious.
His direct acquaintance with the old China extended over the long
period of forty years,—from his arrival at Tengchow in 1863 to his
return from his last furlough, in 1903. During the five years
immediately preceding his death he was face to face with the signs
indicative of the China that is to be. He was therefore exceptionally
qualified to speak intelligently concerning the present situation in that
country; for it is not the man who now for the first time finds himself
there, amid the demand for railroads, and telegraphs, and up-to-date
navy and army, and schools, who is most competent to interpret the
movements of the hour. We are more likely to learn the whole truth if
we turn to veterans like Sir Robert Hart and Dr. W. A. P. Martin and
Dr. Mateer, who by almost lifelong experience know the real mind
and heart of China; which surely, notwithstanding the occurrences of
to-day, have not been completely changed. On the one hand, there
can be no doubt of the love which Dr. Mateer had for the people of
China. To promote their welfare in this world as well as in the next he
gave himself to the uttermost all his long time of residence among
them, and when death confronted him at last, his only reluctance to
obey that call of his Master was because he would be unable to
complete what he regarded as perhaps his greatest service for them.
As we have already seen, in his explanation of the causes of the
Boxer outbreak, notwithstanding his heartbreak and indignation for
the horrors and outrages perpetrated, he lays bare the secret of it, as
consisting in part of the wrongs done by foreign nations and persons
to China and the Chinese. There were hundreds and perhaps
thousands in Shantung who revered him as a father, and confided in
him as they did in almost no other human being.
I mention this side of his attitude because there is another that
must be brought out here so clearly that no failure to see it is
possible. He never allowed himself to be blinded as to radical faults
of the most serious nature in the Chinese. It was about the same
time as his entrance on his missionary work that Americans were set
agog by the “Burlingame Mission,” and indulged in very extravagant
notions of the civilization of old China and very rosy anticipations of
the future. Even missionaries caught the fever of the hour, and for
home publication wrote articles that seconded this view. This was so
completely foreign to the reality, as Dr. Mateer saw it, that he
responded with an elaborate article in which he calmly punctured
these current notions. It was the fashion then to regard the Chinese
as leading the world in past ages, but in his opinion in none of their
boasted achievements do they deserve such credit. Largely they
have been imitators; and in the realm of their own inventions and
discoveries and organizations they have seldom shown themselves
capable of making the applications that ought to have been so patent
to them that they could not miss them. Perhaps—writing as he did in
reply to overdrawn appreciations on the other side—he may have
fallen into the opposite mistake, to some degree. Perhaps also in
later years he would not have gone quite so far in the direction he
then took; but he never wavered in his opinion that in the lapse of
ages during which the Chinese had lived so exclusively within
themselves, characteristics that are racial have been developed,
some of which must be overcome, and others of which must be
immensely transformed, before China can take her place among the
advanced nations of the world. Also, ignorance, prejudice and
superstition stand in the way, and cannot suddenly be dispelled. He
continued to believe that, notwithstanding the present rush to
introduce western appliances, the hatred of the foreigner, except
among a minority, remains in the heart of officials and people. He
believed too that, because of their faithlessness to obligations which
they had assumed toward other governments, the apparent
aggressions of foreign nations were not always and altogether
without a measure of justification. Chinese law he considered to be
still so much a mere whim of officials, often corrupt, that the time has
not yet come for an American citizen, whether missionary or
merchant or mechanic, to be left safely to the uncertainties of a
native court.
Dr. Mateer was one of the leading “makers of the new China.” It is
because of his “Mandarin Lessons” that it is now, in comparison with
the olden times, so easy to acquire the language; thus not only the
missionary but also the agents of modern civilization are helped to
gain speedy access to the people. He was the first to plant a college
in the great province of Shantung, the birthplace of Confucius and
Mencius, and still the center to which the race turns as that from
which has emanated their most dominant cult. He took the lead,
even of all the missionary colleges, in the place which he assigned to
physical science. With his own money he built a museum which he
described as “a kind of polytechnic, for exhibiting foreign sciences
and machinery to Chinese students and visitors.” There they could
see the appliances of steam and of electricity at work, including a
model railroad, and the telephone and telegraph. When the governor
of the province organized his university at the capital, it was the man
whom Dr. Mateer had made his successor in the college at
Tengchow who was at first placed at its head, and five of the
graduates were chosen to fill chairs in the new institution. He
prepared text-books in mathematics, for which there is an enormous
demand in the schools which are supplanting those of the olden
time. To him more than to any other individual is due the translation
of the New Testament into a form of the language which is just as
intelligible to the man who can read but little, as to the educated; and
which cannot be widely circulated without starting upward tendencies
more mighty than those of railroads and western machinery. It would
be preposterous to claim for any one person that he has been the
maker of the new China; but there are not very many who, as to the
mighty transformation apparently not far distant, rank so high up as
Dr. Mateer.
Thus far in holding him up as one of these leaders I have not
mentioned his influence as an effective missionary in the sphere
usually occupied by the representatives of the gospel; and for the
reason that, as to this, he is a sharer with a multitude of others. At
present there must be about four thousand men and women—
ordained ministers, and lay men and women—in that line of Christian
service in China, and there are about two hundred thousand Chinese
Christians. These, though scattered far and wide among the
hundreds of millions of the population, are sufficient to be powerfully
felt on the side of genuine progress. Though in rapidly lessening
numbers, their presence stretches back to the coming of Robert
Morrison, a hundred years ago. Dr. Mateer’s own judgment as to the
relation of the missionary work to the present situation is well worth
attention. In an article written by request, about nine months before
his death, he said:

The nation is in a state of transition which, when compared

with her past and her traditions, is nothing short of marvelous.
Who would have predicted thirty-five years ago that such a
 state of things as the present would so soon prevail? God has
used a variety of powerful forces to awaken China from her
long sleep, not the least of which have been the presence and
influence of the missionary. Aside from his main business,
which is the conversion of individuals and the upbuilding of
churches, he has had a powerful influence in a number of
important matters. First, his residence in all parts of inland
China has done far more than is generally known to remove
prejudice and to familiarize the people with foreign ideas and
things. Second, he has been a main factor in starting the anti-
foot-binding movement that is now sweeping over the land.
Third, he has been the chief mover in the remarkable anti-
opium reformation that is now enlisting the utmost effort of the
Chinese government. Lastly, in the intellectual awakening,
and in starting the wonderful educational propaganda now
being pushed forward by the government, he has been a
potent factor. Missionaries have made the text-books, and the
graduates of their schools have set the pace for this
remarkable movement; and this has been done
notwithstanding the intense prejudice that exists against
Christianity and its professors.

Of the fact that he was face to face with a state of things that
promised tremendous changes he was fully conscious. No man
could have been more alive to his environment during these last
years of his life. May 2, 1905, he wrote to a generous friend in the
United States: “The state of things in China to-day presents a great
contrast with what it was when I arrived here forty-one and a half
years ago. Then everything was dead and stagnant; now all is life
and motion. It is just fairly beginning, it is true, but there is the
promise of great things in the near future.” September 1, 1907, in
another letter to a friend, he says: “This great and massive people,
so long below the horizon of the western world,—a misty, unknown
land,—is looming large in the east, and the eyes of the west are on
it. China is awakening from the sleep of ages. Her senses are still
dull, benumbed by the traditional customs and conservative follies of
the past, but her eyes are opening more and more, day by day. It is
true she still wants to sleep on, but she cannot. The clamor of the
world’s progress dins in her ears. Giant hands are shaking her.
Specters fill her imagination and groundless fears make her troubled.
She essays to rise, but has no strength. She is growing frantic at the
realization of her own weakness and incompetence.”

CELEBRATING DR. MATEER’S SEVENTIETH BIRTHDAY

Facing the new China he, while gladdened on the whole by the
outlook, yet saw grave dangers in the way. Some of these are due,
in his estimation, to characteristics that have rooted themselves very
deeply in the spirit of the people at large. In his article on “Education
in China” he said:

It is a peculiarity of the Chinese character that they are very

hard to convince of the utility of a new thing, and must always
be doubly sure before they decide to act; but as soon as the
decision is made, they at once grow recklessly impatient for
the consummation. The old educational methods and ideals
are now abolished and the government is rushing headlong
into new and hitherto untried measures. They issue
commands to their subordinates without providing the means
 of carrying them out. The result is a chaos of more or less
futile effort, attended by burdensome taxes and illegal
exactions that produce disaffection and rebellion. The lack of
competent teachers handicaps the whole movement. To the
eye of a western educator most of their primary and
secondary schools are little short of a farce. Mission schools
have trained a large number of competent teachers, but in
most cases the prejudice against Christianity is so strong that
heathen schools will not use them. This prejudice is much
stronger in the secondary schools than it is in the provincial
colleges and universities. The high officials generally take
more liberal views, and they are free from the social ostracism
that prevents a small official or a private gentleman from
employing a Christian teacher.

On account of the characteristics just described, while he rejoiced

in the immense progress which Christianity was making both in the
conversion of increasing thousands and also in its indirect influence
over multitudes more, he had anxieties as to the near future of the
church in that land. Writing to one of the secretaries of the American
Bible Society, in January, 1906, he said: “If I understand the signs of
the time in China, it will not be many years—I put it at ten to fifteen—
until the Chinese church will declare her independence of the
missionaries, pay her own expenses, and make her own creed....
What this creed will be, will depend very much on the kind and
number of preachers we train in the meantime.” The speeches made
at the Chinese Students’ Alliance, held at Hartford, August 24, 1910,
both by the Chinese and by Americans, indicate a very strong
tendency in this direction.
In view of the entire situation, national and religious, he iterated
and reiterated that the most imperative duty of missionaries in China
at present is the training of native preachers and teachers on a scale
and in a manner that will fit them to meet the emergency, and to take
advantage of the opportunity for the evangelization of the land and
the starting of the church that soon must be, on a voyage that will
not, through lack of chart and compass and proper guidance, wreck
itself on the way. Here are some of his deliberate utterances within
the last three years of his life:

Allow me to say that at the present time in China I regard

schools and the training of teachers and preachers as the
chief thing,—much more important than the founding of new
stations, with expensive buildings, in order to cover new
territory. This is not a passing thought, but is said advisedly.
The time for training these teachers and preachers is limited;
before many years the native church will declare her
independence, when all will depend on the intelligence and
soundness of her leaders.

Again taking a view that includes the church, but that is so broad
as to sweep over the entire national situation, he said:

“China is fascinated by the power, skill, and knowledge of

the west. She covets these things, and clamors impatiently for
them, but they do not come at her call. She has caught up the
idea that education will solve the problem and speedily lift her
into the family of nations. She issues edicts to annul the old
and inaugurate the new. She commands the opening of
schools in every county, not realizing that without teachers, or
methods, or money efficient schools are impossible. True to
her character, she is deceiving herself with a sham; a mere
pretense of knowledge. The old is passing faster than the new
is coming, and there are ominous signs of danger ahead.
There are already a good many competent Christian teachers
in China, and very few others; but Chinese conservatism
hates and fears Christianity, and will not employ Christian
teachers if it can possibly be avoided. China has still one
great and fundamental lesson to learn, namely: that
Christianity is not her enemy, but her friend; that faithful and
honest men are not made by simply teaching them geometry
and chemistry. She will presently learn, however, that
Christianity holds the only patent there is for the construction
 of high moral character. She resents the idea now, but sooner
or later she will be compelled to admit it. In the meantime she
needs men to teach her, and to show her the way. Never
perhaps in the world’s history was the saying of Christ more
conspicuously exemplified: “The harvest truly is plenteous,
but the laborers are few.”

Ever since he set foot on the soil of that country he had kept on
pleading for reinforcements in his work,—now a physician, then a
teacher, again a man capable of overseeing mechanical operations,
and always more ordained missionaries. He entertained very
common-sense notions as to the sort of reinforcements that are
desirable. He says in an old letter directed to theological students in
the seminary where he was trained: “I might add more especially that
missionaries should not be men of one idea, unless perchance that
idea be a zeal for saving souls. The men needed are those who
have well-balanced, practical minds.... The man of vivacious
temperament, pleasing address, ready wit, and ready utterance,
other things being equal, will make the best missionary.” The
language he did not regard as at all beyond the acquisition of any
person with fair ability and faithful application, though he recognized
more than a moderate measure of these as essential to the writing of
books. As the new China loomed up before him, his cry for help
became, if possible, more earnest; it came from the very depths of
his soul, and with an intensity which words could not adequately
express.
Before proceeding to relate the story of his death, can I do better
than to give the last of these appeals of which we have the records?
The letter from which I quote is dated Wei Hsien, September 1,
1907, just a year before his Master called him home. He said:

Tell the young men of America for me, that China now
presents to the church the greatest opportunity of the ages.
God has opened the door,—opened it wide. Three hundred
and fifty millions of people are ready to hear the gospel
message. This door has not been opened without great strife
and effort. In the face of steady and persistent opposition, and
through much suffering and bloodshed, a large and lasting
impression has been already made. The dark and
discouraging days are over and the future is bright with
promise. As I look back over the first twenty-five years of my
missionary life, it seems like a troubled dream. The last fifteen
years have wrought wonders in China. Old customs and
prejudices are giving way. The bright dawn of better things is
upon us. The most conservative and immovable people in the
world, persistently wedded to the old ways, are getting used
to new things, and are ready to accept whatever promises
profit and prosperity. All ears are open, and the preaching of
the gospel is nowhere opposed or resisted. I often wish I were
young again, just ready to start in on the bright opening
campaign. In a large sense the future of the church and of the
world lies wrapped up in this great people. Why in the
providence of God the gospel of salvation has not long ere
this reached this oldest and greatest nation is an unexplained
mystery. These unconverted millions of the Mongolian race
will presently come into their inheritance of truth and grace,
and then who shall say what they will become, and do? Their
fecundity, their physical stamina, their patient persistence and
intellectual vigor, are factors that will count in the world’s
future history.... As I look at the situation in the light of the
past, and forecasting the probabilities of the future, a more
inviting field for the exercise of consecrated talent has rarely,
if ever, presented itself in the history of civilization. Very few
people in the church in the west understand and appreciate
the present condition of things in China. The political forces
and problems are better understood than the moral and
religious. It is still true that “the children of the world are wiser
in their generation than the children of light.” The faith of the
long, old centuries is passing rapidly away, but what shall the
new faith be? This is the great Christian question of the hour.
The young men of China are mad to learn English, because
there is money in it. With English come books and
newspapers, sowing the seeds of agnosticism, and
skepticism, and rationalism, and so forth. The cry is, Who will
champion the truth? Who will administer the antidote? Who
will uphold the cross? Who will testify for Christ? The call is
urgent. Satan is in the field. The opportunity is passing. The
time is strategic. The changes of many years are now
crowded into one. Young men, it is time to be up and doing!
The march of events will not wait on your tardiness. Who will
hear the Master’s trumpet call?
 XVI
CALLED UP HIGHER

“I have given my life to China: I expect to live there, to die there, and to be
buried there.”—from his farewell address in the central
presbyterian church, Allegheny, Pa., 1862.
“I expect to die in heathen China, but I expect to rise in Christian China.”—
another farewell address.

In the chapter on the Mandarin revision we left the committee on

the Old Testament, in the summer of 1908, at work on Genesis and
the Psalms, down at Chefoo, with the Goodrich and the Mateer
family keeping house together. Dr. Goodrich had been the dean of
the Union Theological Seminary at Peking, and so was thoroughly
versed in the educational phase of missions, still occupying so large
a place in the heart and mind of Dr. Mateer. These two men also had
served together on the revision of the New Testament, from the
beginning to the end. They were in many features of their character
very different from each other, and yet in their common labors and in
their convictions they were in thorough harmony. Mrs. Goodrich and
Mrs. Mateer had come out on the same steamer in 1879, to join the
forces of the American Board, as unmarried missionaries; and the
subsequent years had served to cement their friendship. The house
in which they resided at Chefoo during that summer looked out on a
charming scene: the “island,” the bay, and the passage, with craft of
all kinds, Chinese junks and sampans, and steamers, small torpedo
boats, and big battleships of every nation, either riding at anchor or
coming up into the harbor. From the back windows the eye rested on
a jagged range of hills, crowned at the top by a curious wall, so like
the views of the Great Wall shown in pictures that ignorant sailors
imagined it to be that famous structure. One can easily understand
that under such circumstances the two families greatly enjoyed the
earlier part of the session of the committee. Dr. Goodrich, in the
following quotation from the article which he published in the January
issue of “The Chinese Recorder,” in memory of Dr. Mateer, had in
mind his entire acquaintance with him, extending over thirty-five
years, but it is tinged especially with the recollection of the preceding
summer. He says:

Much of the time we have been together in the protracted

daily sessions of the committee, as well as in the long
evening walks, when we talked on everything between the
zenith and the nadir; for then his thoughts were “ready to fly
East as West, whichever way besought them.” If he were not
widely read, he had thought widely and deeply, being at once
conservative, progressive, and original. He had strong
opinions, and was at times severe and stern in maintaining
them. But he loved those of a contrary opinion with a true and
deep affection. From first to last he was a royal friend. Dr.
Mateer thought naturally in terms of logic and mathematics,
but not without a side in his nature for poetry and sentiment.
Dr. Mateer’s character, especially during the later years,
was constantly mellowing, and the past summer, which our
two families spent together in our own “hired house” at
Chefoo, must ever be remembered as one of the happiest
periods of our lives, without a break or jar to mar its
enjoyment. Was it a sort of unconscious preparation for the
sweeter joys and more perfect fellowship in the dear upper
home?
Dr. Mateer worked on with his usual untiring faithfulness,
during the last summer, though not quite well at times. How
he lived in the Psalms, upon which he bestowed loving labor!
Sometimes he would look out from his little study to the room
which held all too closely his beloved wife, who has followed
the Bible revision with an interest scarcely less intense than
his own, and consult with her on some difficult phrase, or tell
her of some beautiful figure he had succeeded in translating.
 In the early morning we took a dip in the sea—he was a
good swimmer—and after he had “talked with Him,” at six
o’clock he was ready for his teacher. In the evening his walks
were less regular and shorter than in other years.

In explanation of one sentence of the preceding it needs to be

stated that by an accident Mrs. Mateer was then so disabled that she
kept her room.
During the summer he suffered from a chronic tendency to
dysenteric diarrhea, yet it was not until well toward the close of the
session of the Committee that he remained in bed for the entire day.
At first he worked on there, upon the translation of the Psalms, which
he was especially anxious to give to the people in such language
that they could readily catch it with the ear, and that the Psalms
might be to the Chinese church the rich heritage they are to the
English-speaking race. At length it became evident that his case was
fast becoming so critical that if medical aid under the most favorable
conditions could save his life, the very best that could be had must
be secured at once. So it was decided that he ought to go on a
steamer down to Tsingtao in the German concession. It would
require twenty-four hours to make the trip; but when asked whether
he was able to endure the journey, he replied: “I must. I shall die if I
remain here.”
The necessity for the change was not due to any lack of medical
care or friendly ministrations at Chefoo; it was made in order to
secure the superior advantages which a good hospital affords.
Fortunately the voyage was quiet. His wife went with him; and Dr.
and Mrs. Goodrich also accompanied them. It was Tuesday night
when they reached Tsingtao, and friends were at the landing; and,
supported in loving arms, he was carried at once in a carriage to the
Faber Hospital, where Dr. Wunsch, a skilled physician, exhausted
his efforts to save him. Dr. Hayes was already there, and at Dr.
Mateer’s request spent each day in the hospital.
Friday of that week was the anniversary of their marriage, but it
was impracticable for his wife to be brought to his bedside. Saturday