Growth of Employment in the Manufacturing Sector: Impact of Trade and Trade-related Policies

Abstract

The growth of the manufacturing sector has been considered as one of the key policy tools for the structural transformation of the Bangladesh economy and as a major mean for achieving full employment. Following Jenkins and Sen (2007), this paper has tried to distinguish the impact of trade on employment through three distinct effects—‘size effect’, ‘composition effect’ and ‘process effect’. The analysis tends to suggest that no single type of effect reveals any clear pattern of growth in manufacturing employment due to trade. At the same time, domestic market-oriented industries have also been contributing to employment growth. In other words, trade-related policies and measures are likely to have a ‘partial’ role in influencing the nexus of growth of production, exports and employment. However, the study shows that attempts to create ‘exports at any cost’ or to overly protect domestic industries are likely to engender policy biases, rent-seeking and corruption. In the backdrop of different kinds of market failures and problems of governance, the choice of policies with regard to enhancing employment should be well calibrated with policy priorities to increase productivity and export, with appropriate emphasis on both domestic and export-oriented industries.