ABSTRACT
Bangladesh pursued an import-substituting industrialization strategy in the 1970s, the key objectives of which were to safeguard the country’s infant industries, reduce the balance of payments deficit, use the scarce foreign exchanges efficiently, ward off international capital market and exchange rate shocks, lessen fiscal imbalance and achieve higher economic growth and the self-sufficiency of the nation. However, in the face of the failure of such an inward-looking strategy to deliver the desired outcomes, along with rising internal and external imbalances, trade policy reforms were introduced in the early 1980s. Since then trade liberalization has become an integral part of Bangladesh’s trade policy. Bangladesh has been able to reduce its protection for the domestic sectors quite significantly by undertaking substantial reductions in quantitative restrictions (QRs), drastic opening up of trade in many restricted items, significant rationalization and diminution of import tariffs, a move to a freely floating exchange rate system and considerable adjustments to monetary and fiscal policies. Another important element of trade policy reform was the introduction of generous promotional measures for exports. While import and exchange rate liberalization was intended to correct the domestic incentive structure in the form of reduced protection for import-substituting sectors, export-promotion schemes were undertaken to provide exporters with an environment in which the previous bias against export-oriented investment could be reduced significantly. The reform measures and export incentives have witnessed an impressive export performance.
