Agricultural prices in Bangladesh have had a tendency to rise at a faster rate than industrial prices since the early 1950s. The resulting rising trend in the agricultural terms of trade has been pronounced since the mid-1980s when Bangladesh introduced IMF- and World Bank-supported deregulatory economic reforms. This rising trend in the agricultural terms of trade is inconsistent with the Prebisch-Singer thesis in the context of domestic economy, which suggests a secular deterioration in the terms of trade for primary products vis-à-vis manufactured products. It is, however, consistent with the view of classical economists who saw the possibility of an upward trend in the terms of trade for agricultural products (food) because of diminishing returns in agriculture. In fact, the classical idea of the rising terms of trade for primary products makes sense in a land-constrained growing economy with increasing population, such as Bangladesh, which remained semi-closed until the mid-1980s. This article reviews macroeconomic policies in Bangladesh since the 1950s, examines the time-series properties of agricultural prices, industrial prices and the agricultural terms of trade and draws inference on the issue whether the agricultural sector was squeezed systematically by turning the terms of trade against agriculture for industrialisation of the country.
Journal of Contemporary Asia Vol. 39, Issue 2, p. 204-230