Bangladesh performed poorly in a knowledge economy index for failing to shift from labour-intensive growth to productivity-led growth, a path to becoming a middle income nation.
The country ranked 27th out of 28 emerging economies in Asia and the Pacific, according to the report, "Innovative Asia: Advancing the Knowledge-based Economy", published by the Asian Development Bank in April this year.
ADB Vice President Bindu Lohani presented the study findings to Finance Minister AMA Muhith at his secretariat office in the capital yesterday.
Welcoming the ADB initiative, Muhith said it was good that the bank studied the sub-sectors and how they affected the economies in the region.
"We are almost at the bottom of all sub-indexes, but ADB has said that Bangladesh's progress is good, which bodes well for the future," Muhith told reporters at the secretariat.
The minister said Bangladesh would have to come out of the league of the least developed countries and move forward to become a middle income nation. "To do so, we need to make a quantum leap."
Muhith said Bangladesh could start with the ICT sector. "We have to do better in higher education." In the ADB ranking, Bangladesh fell below Sri Lanka (17th), India (22nd), Pakistan (23rd) and Nepal (26th).
Bangladesh scored 1.49, which is much lower than the Asia and Pacific average of 4.39 and the Organisation for Economic Cooperation and Development (OECD) average of 8.25.
Any score below three would be regarded as “poor” because the average score was 4.39 for the region, according to Biru Paksha Paul, an associate professor of economics at the State University of New York at Cortland.
Bangladesh ranked 26th in terms of innovation, 25th in education and skill, and ICT, and 24th in economic and institutional regime, said the ADB report based on the World Bank index.
"Much to our despair, we positioned below even Pakistan in the index of knowledge economy … Growth without a knowledge base will run out of steam very soon," Paul, a Bangladeshi economist, wrote in a recent article.
He said the ranking and scores in the knowledge economy index warrant urgent attention from the government. "It is a wake-up call for the higher education industry where quality is appalling."
The ADB study assessed the current state of knowledge-based economies in a number of developing Asian economies, and benchmarked them with advanced economies using four pillars: innovation, information and communication technology, education and skill, and the economic and institutional regime.
"The underlying premise is that emerging economies in Asia can climb up the ladder of higher value-added products and services in global markets and go beyond middle-income levels by strengthening knowledge-based development processes," said the ADB.
Much of the exemplary growth in Asia has come from its economies' long-held comparative advantage in labour-intensive goods. Emerging economies will, however, find it impossible to continue their success under the same growth models used over the last few decades, as technological progress changes the ways countries produce and trade.
With rising wages across the region, most Asian economies stand to lose their comparative advantage for labour-intensive manufacturing and will also feel the pressure exerted on increasingly scarce and costly energy resources, it said.
Asia's economies also face a looming “middle-income trap” where the economic success a country achieves through comparative labour advantage diminishes as wages rise and productivity levels decline, slowing overall economic growth.
For Asia's emerging economies to avoid the middle-income trap, they need to effectively shift from accumulation-led growth to productivity-led growth.
"Knowledge will become increasingly important as a source of productivity growth. While many countries in Asia have expanded their industrial base and increased the share of the services sector, they need to avoid being stuck in the middle-income trap -- knowledge-based economy is an important way forward."
This study argues that there are three ways in which emerging economies of Asia and the Pacific can pursue knowledge-based economic development.
Firstly, they can learn from the knowledge-based journey of advanced economies and make appropriate investments and policy reforms.
Secondly, they can exploit the unique strengths and endowments of the region by pursuing strategies that amplify such strengths, and thirdly, they can do it by leveraging game-changing trends in technology and business processes that can enable emerging economies to leapfrog technology development cycles and catch up with the latest.