08 September 2017 ECO200-Assignment 2 Jocelyn Stephanie

International trade is the system by which countries exchange goods and services (Gonnelli,
1993). Total trade equals exports plus imports. The process of exporting and importing creates
a greater variety of goods and services because it permits countries to specialize in what they
do best. By specializing in the goods it can produce the most efficiently, a country can increase
production. But which goods should a country spesialize in? What should it export and what
should it import? The answer is that it should export those goods in which they have a
comparative advantage and import those goods in which they have a comparative disadvantage.
Comparative advantage is when a country can produce goods at a lower opportunity cost.

The term multinational company describes any corporation or enterprise that operates in
several different countries but is managed in one country (Flisowski, 2015). The existence of
multinational companies can help developing countries including Bangladesh. First, they
provide an inflow of capital into the developing country. The investment to build the factory is
counted as a capital flow on the financial account of the balance of payments. This capital
investment helps the economy develop and increase its productive capacity (Pettinger, 2009).

Second, multinational companies help Bangladesh competes against foreign companies. At the
beginning, the foreign pharmaceuticals were dominating the market. Still now,
pharmaceuticals industries are facing foreign competition. However, according to Bangladesh
Association of Pharmaceutical Industries (2016), there are many multinational pharmaceutical
organizations which have established their plants in Bangladesh and importing their raw
materials from abroad.

Third, the skills and knowledge of the professionals and innovative ideas of the people involved
can improve the quality and the production of medicines. Due to this development, the country
is exporting medicines to global market including European countries and on the top of it, the
industry has been supplying about 95 per cent of the domestic demand for medicines (Habib,
anamul;Alam, Zahedul, 2011). This will result in the increase of exports and profits.

Fourth, pharmaceutical industry believes that human resources are the most valuable asset for
the organization. Therefore, the existence of multinational companies offer more job
opportunities for people in Bangladesh. Although not all of them are qualified enough due to
the fact that pharmaceutical areas need someone who possesses knowledge about medicines, it
still can reduce the number of unemployment in Bangladesh.

Some countries are doing international trade agreements that can protect jobs. Despite this,
some economists prefer free trade to trade agreement. Free trade means that countries can
08 September 2017 ECO200-Assignment 2 Jocelyn Stephanie

import and export goods without any tariff barriers or other non-tariff barriers to trade.
Essentially, free trade enables lower prices for consumers, increased exports, benefits from
economies of scale and a greater choice of goods. On the other hand, trade agreements are filled
with exception. Rather than free trade, these agreements create a regime of managed trade and
lots of expensive useless wealth-consuming jobs for bureaucrats. They discriminate against
lower-cost imports from countries that are not part of the treat. The importers of these higher-
cost goods need more foreign currency to pay for them. As a bonus, part of the tax revenue the
government gave up with the tariff exemption winds up as income of the pocket of the favored
supplier (Tucker, 2008).

Free trade enables countries to specialize in those goods where they have a comparative
advantage. Therefore, by doing free trade, Bangladesh can produce and spesialize in medicines
with lower opportunity costs. As a result, there will be an increase in economic welfare.
Because free trade does not have any tariff barriers, Bangladesh can also set lower prices for
consumers. This fall in prices will increase the consumer’s demands and the quantity of exports
which in turn will increase the economic growth for Bangladesh.

Bangladesh depended heavily on the exports of textiles and clothing, or ready-made garments
(RMG) with more than 4,000 garment firms. More than 95 percent of those firms were locally
owned with the exception of a few foreign firms located in export processing zones (2016),
however it was potentially vulnerable to the large shock of the final stage of the quota phase-
out. Despite the impressive export performance during most of the 1990s, recent export
performance indicated that Bangladesh may not be sufficiently competitive to maintain its
share in a quota-free world market after 2004 and would result in unemployment.

Bangladesh’s wages were low compared with most of its competitors and the productivity of
its labor force was also low and stagnant. Coupled with inadequate infrastructure and policy-
induced weaknesses, Bangladeshi exporters would likely find it difficult to compete in the short
to medium term even if appropriate policy responses can be put in place rapidly (Yang, 2004).
Therefore, the Foreign Minister expected that trade in medicines were able to solve this issue.
He intended to shift Bangladesh’s focus of production from garments to medicines due to the
fact that the country has shown a great development in medicines.

In 2004, Bangladesh was exporting medicines to 60 countries and possessed a big advantage
in lower cost production. The production of medicines were up to 70% cheaper than other
developed countries. In addition, if Bangladesh could obtain 2% of the trade from the
08 September 2017 ECO200-Assignment 2 Jocelyn Stephanie

medicines, it could be worth many times compared to clothing exports that had been done
before.

This intention of the Foreign Minister of Bangladesh however could encounter some problems
such as employment. It might be difficult for employment in the clothing industry to be
replaced by employment in the manufacture of medicines. The production of medicines
employed around 50,000 workers and most future jobs would require highly trained
technicians. On the other hand, the clothing production employed 1.8 million unskilled workers
and accounted for more than 75% of Bangladesh exports.

Workers in the production of medicines must have a great knowledge about medicines, whereas
clothing industry involved more physical labor. Therefore, it would not be easy for them to
shift to clothing industry as the two areas were mostly different. According to World Bank
(2017), approximately 80% of garment workers were women. Female garment workers
constituted a highly vulnerable group: young, poor, unskilled, sometimes illiterate, and often
single women in a society dominated by strong gender hierarchies. In addition, the wages that
workers earned in the clothing industry were extremely low compared to those in pharmaceutial
area. Thus, people would prefer to work in pharmaceutical industry and it would be difficult
for employment in clothing industry to be replaced by them.
08 September 2017 ECO200-Assignment 2 Jocelyn Stephanie

References
Bangladesh Association of Pharmaceutical Industries, 2016. Bangladesh - Pharmaceutical. [Online]
Available at: https://www.export.gov/article?id=Bangladesh-Pharmaceutical
[Accessed 2 September 2017].
Flisowski, Fanny., 2015. Multinational Corporations. [Online]
Available at: https://www.nfhs.org/media/1015608/multinational-corporations.docx
[Accessed 12 September 2017].
Gonnelli, A., 1993. Basics of Foreign Trade and Exchange. [online]
Available at: http://ecedweb.unomaha.edu/ve/library/BFTE.PDF
[Accessed 12 September 2017].

Habib, anamul;Alam, Zahedul, 2011. Business Analysis of Pharmaceutical Firms in Bangladesh:

Problems and Prospects. [Online]
Available at: http://bdresearch.org/home/attachments/article/888/PHARMACEUTICAL.pdf
[Accessed 8 September 2017].
Hasan et al, 2016. Role of Textile and Clothing Industries in the Growth and Development of Trade &
Business Strategies of Bangladesh in the Global Economy. International Journal of Textile Science,
V(3), pp. 39-48.
Pettinger, T., 2009. Multinational Corporations in Developing Countries. [Online]
Available at: http://www.economicshelp.org/blog/1413/development/multinational-corporations-in-
developing-countries/
[Accessed 2 September 2017].
Tucker, J., 2008. Free Trade versus Free-trade Agreements. [Online]
Available at: https://mises.org/blog/free-trade-versus-free-trade-agreements
[Accessed 8 September 2017].
World Bank, 2017. In Bangladesh, Empowering and Employing Women in the Garments Sector.
[Online]
Available at: http://www.worldbank.org/en/news/feature/2017/02/07/in-bangladesh-empowering-and-
employing-women-in-the-garments-sector
[Accessed 9 September 2017].
Yang, M. M. a. Y., 2004. The End of Textiles Quotas:. [Online]
Available at: https://www.imf.org/external/pubs/ft/wp/2004/wp04108.pdf
[Accessed 8 September 2017].