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The dual economy paradox: the case of Bangladesh and India

Authors:
Sakib Bin Amin at North South University
Sakib Bin Amin
Farhan Khan at North South University
Farhan Khan
Mashiyat Rafa Khan
Mashiyat Rafa Khan
Mashiyat Rafa Khan
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Jaahin Azam Oyishi
Jaahin Azam Oyishi
Jaahin Azam Oyishi
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We aim to examine Lewis–Ranis–Fei (LRF) model’s predictions of economic development phases for Bangladesh and India. In this regard, we use annual data covering from 1990 to 2019 and apply robust econometric methods for estimating the sectoral (agriculture and non-agriculture) production functions to calculate the Marginal Productivity of Labor (MPL) and the labor reallocation effect. We find that both India and Bangladesh are in the second phase of the LRF model. Moreover, dynamic simulation reveals that Bangladesh will likely reach the LRF turning point before India due to the relatively high labor reallocation effect. Obtained results indicate that observed development pattern is due to country-specific economic and prevailing social characteristics. Based on the results, we also provide a few policy suggestions for both countries’ economic sustainability.
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Vol.:(0123456789)
SN Bus Econ (2023) 3:164
https://doi.org/10.1007/s43546-023-00540-2
ORIGINAL ARTICLE
The dual economy paradox: thecase ofBangladesh
andIndia
SakibBinAmin1 · FarhanKhan2· MashiyatRafaKhan2· JaahinAzamOyishi2
Received: 17 April 2022 / Accepted: 25 July 2023 / Published online: 7 August 2023
© The Author(s), under exclusive licence to Springer Nature Switzerland AG 2023
Abstract
We aim to examine Lewis–Ranis–Fei (LRF) model’s predictions of economic devel-
opment phases for Bangladesh and India. In this regard, we use annual data cover-
ing from 1990 to 2019 and apply robust econometric methods for estimating the
sectoral (agriculture and non-agriculture) production functions to calculate the Mar-
ginal Productivity of Labor (MPL) and the labor reallocation effect. We find that
both India and Bangladesh are in the second phase of the LRF model. Moreover,
dynamic simulation reveals that Bangladesh will likely reach the LRF turning point
before India due to the relatively high labor reallocation effect. Obtained results
indicate that observed development pattern is due to country-specific economic and
prevailing social characteristics. Based on the results, we also provide a few policy
suggestions for both countries’ economic sustainability.
Keywords Economic development· Lewis–Ranis–Fei model· Lewis turning point·
Bangladesh· India· Economic sustainability
* Sakib Bin Amin
sakib.amin@northsouth.edu
Farhan Khan
farhan.khan008@northsouth.edu
Mashiyat Rafa Khan
mashiyatrafakhan@gmail.com
Jaahin Azam Oyishi
ja.oyishi@gmail.com
1 School ofBusiness andEconomics, North South University, 1229Dhaka, Bangladesh
2 School ofBusiness andEconomics, North South University, Dhaka1229, Bangladesh
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