The Enclave Approach Has Outlived Its Usefulness for Bangladesh

The Enclave Approach Has Outlived Its Usefulness for Bangladesh

By Sanjay Kathuria and Nadeem Rizwan
Macroeconomics, Trade and Investment Global Practice, South Asia Region The World Bank Group
27 July 2021

The growth of its readymade garments industry has been a critical factor in Bangladesh’s development success. However, Bangladesh has not been able to replicate this success in other labor-intensive sectors. A key reason for this is the current trade policy stance that allows a virtual free trade regime in the garments sector, but perpetuates a high degree of protection to the domestic (import substituting) industries, at the expense of emerging and potential export industries. This enclave approach encourages most productive sectors to cater to the domestic market and cannot sustain export growth at the rates required to accelerate growth or provide quality jobs, especially in the face of impending preference erosion. There is an urgent need to change this policy stance and start the process of trade reforms in a careful and calibrated manner, which will promote export diversification and also maintain the dynamism of the garments sector.