Impact of trade openness in labour intensive full package manufacturing industries and its fragmented value chain: a theoretical study of readymade garments sector of Bangladesh

Abstract

This paper adopts a theoretical approach based on certain trade statistics of Bangladesh and existing literature to examine the relationship between trade openness and economic development in the case where fragmented value chain based labour intensive buyer driven manufacturing industry is dominant, taking ready-made garments sector of Bangladesh as an example. Despite there exists no uniform conclusion in the literature that trade openness will always lead to positive development outcome in every context, this paper argues that an open trade economy with comparative advantage in labour supply will always be benefited from the changing nature of global production system that relies more on fragmented value chain. The study finds that in the case of Bangladesh, a shift in policy regime towards an open trade economy from an infant industry protection policy has brought significant positive development outcomes not only for the country’s economy but also for the society as a whole as it flourished the development of buyer driven labour intensive readymade garments industry in Bangladesh. Both the static and dynamic gains from trade openness in the country has been substantial in the form of generating employment and export revenue, increasing investments, reducing poverty, raising competitiveness in the global market, promoting female labour force participation in the economy and in many other ways. As such, this paper advocates that further liberalization of trade policies and integrating in the global production value chain should be the prime policy objective of the government in order to establish Bangladesh as a global production hub in the future.