There are many reasons behind this problem. According to the finance and planning adviser, Mizan Azizul Islam, “International price hike of essential necessities as being responsible for high domestic prices.” In most of the cases, international market price is responsible for domestic inflation. Besides, production and production costing, export and import, preservation system, marketing policies, communication system etc are also responsible for this problem. Moreover, a group of business people are taking the advantages of these and increasing the price of necessary goods. This is unethical and unlawful.
Factors that Influence to Increase Price of Goods Some factors are influencing the overall situation of the market to increase the price of
necessary goods. They are-
Export and Import
Unethical business practice tendency
Retail sellers unlawful tendency towards benefit
Global market price
Lack of government rules and its implementation
Production The mass production of goods nationally and globally reduces the price of goods. If it is hampered, then it is impossible to control the price or keep the price of all necessary good in the reach of the poor people. This kind of problem happened when big countries such as China, India, Korea etc fail to produce their necessary goods. Last year due to natural disaster India fail to produce rice as a result demand for rice grows up and a scarcity was arise in the global market and at the same time price for rice goes up at a tremendous rate*. And it had a impacts both in the global and local market.
*.Article on the newspaper ( The Daily Star )- Due to natural disaster India fails to produce rice to meet the local demand. So, they are going to buy and preserve rice from the global market.
ally recognized levels.
Production Cost Production cost depends on availability of production materials such as seed, fertilizer, water, production equipments and the weather. Lack of any of them interrupts the production and increase the production cost.
According to the Section 171.1014, 1 taxable entity that elects to subtract cost of goods sold for computing its taxable margin shall determine the amount of that cost of goods sold as provided by this section. Moreover, the cost of goods sold includes all direct costs of acquiring or producing the goods (Labor costs, raw materials costs, handling costs, storage costs, repairing and maintaining costs etc)*. In addition, the cost of goods does not include the following costs in relation to the taxable entity’s goods (Renting or leasing costs, selling, distributions, advertising costs etc)*.
However, a group of businessperson are not following this rules and regulation and increasing the price of necessary goods for seeking more benefits. On the other hand, the governments are not taking any steps against this group of people though are there rules and regulations to prevent this. The only reason behind is that now a days more than 60% MPs are businessperson.
* Section 171.1012. Determination of Cost of Goods Sold. In this section:
The cost of goods sold includes all direct costs of acquiring or producing the goods, including:
(1) labor costs;
(2) cost of materials that are an integral part of specific property produced;
(3) cost of materials that are consumed in the ordinary course of performing production activities;
(4) handling costs, including costs attributable to processing, assembling, repackaging, and inbound transportation costs;
Preservation Lack of proper preservation system has a great impact of the quality of the goods and on its price. Because of this most of the times producer mainly the farmer lose their interest to produce the goods. However, the government tries to make the cold storages in most of the prime cities. Further, it is not sufficient. Moreover, sometimes it is too much costly
for the farmers and so on. Every year just for the lack of cold storage, farmers are dropping out their goods in the ponds, rivers. Such as tomato, potato, onion etc. Besides, it is a reason of environment pollution. The government is not taking the necessary steps to prevent this. As a result, the victim farmers are losing their interest for producing this goods and a scarcity is going to rise in the local market. Therefore, price of this goods are going high which is unreachable to the general mass.
(5) storage costs, including the costs of carrying, storing, or warehousing property, subject to Subsection (e);
(6) depreciation, depletion, and amortization, to the extent associated with and necessary for the production of goods, including recovery described by Section 197, Internal Revenue Code;
(7) the cost of renting or leasing equipment, facilities, or real property directly used for the production of the goods, including pollution control equipment and intangible drilling and dry hole costs;
(8) the cost of repairing and maintaining equipment, facilities, or real property directly used for the production of the goods, including pollution control devices;
(9) costs attributable to research, experimental, engineering, and design activities directly related to the production of the goods, including all research or experimental expenditures described by Section 174, Internal Revenue Code;
(10) geological and geophysical costs incurred to identify and locate property that has the potential to produce minerals;
(11) taxes paid in relation to acquiring or producing any material, or taxes paid in relation to services that are a direct cost of production;
(12) the cost of producing or acquiring electricity sold; and
(13) a contribution to a partnership in which the taxable entity owns an interest that is used to fund activities, the costs of which would otherwise be treated as cost of goods sold of the partnership, but only to the extent that those costs are related to goods distributed to the taxable entity as goods-in-kind in the ordinary course of production activ
* The cost of goods sold does not include the following costs in relation to the taxable entity’s goods:
(1) the cost of renting or leasing equipment, facilities, or real property that is not used for the production of the goods;
(2) selling costs, including employee expenses related to sales;
(3) distribution costs, including outbound transportation costs;
(4) advertising costs;
(5) idle facility expense;
(6) rehandling costs;
Marketing Still in our country, there are no proper marketing policies of the government. The lower middle class, middle class and upper class businessperson are controlling the markets. Most of the times the farmers are deprived their due prices. The middle class businessperson is unethically increasing the benefit margins. On the other hand, regarding imported goods, the businessperson are syndicating and increasing the prices of goods very high. As a result, for both of this system nationally produced goods and imported goods the consumers of our country are victims of this unethical business. Most of the times the government are the co-sharer of these unethical activities of the businessperson. In one sense, due to dishonesty and corruption justice is like a golden deer for people of Bangladesh. Therefore, the price controlling is hard to reach without development of the humanity.
Besides this in Bangladesh, the business people are not following the perfect marketing strategy. In addition, the government has a lack of control on the over all market condition. Sometimes-due to this many businessperson starts to market their products without testing it and maintaining the quality*. Moreover, they focus on advertisements
and start to market the products at a low price. As a result, the reputed companies who are maintaining the quality of the products it becomes tough for them to sustain in the market. Because they cannot able to market the products at a cheaper rate like their competitors. As a result, the general people have to buy the quality products at a higher rate.
Communication Problem Communication problem influences to increase the price of necessary goods such as vegetables, imported goods etc. Without proper communication problem, it is tough to distribute the goods properly. It is great problem in Bangladesh and we are suffering this problem year after year. Government is trying to improve the communication problem. However, the steps they are taking are not sufficient for our country. Most of the times in the rainy seasons, prices of goods due to the communication problem. Moreover, every year flood is a common natural disaster for Bangladesh that totally breaks down the transportation system of us. On the other hand, each and every the transportation companies have to face many problems. Our government does not take any steps to secure the communication system. Groups of people take the advantage and collect money from the transportation sectors such as police, Mastans and so on. Due to this types of unethical activities, the cost of goods are incrasing.
Export According to the Export Policy 1997-2002 the main objectives are to achieve optimum
national growth, narrow down the gaps between export and import, to make the
exportable items more attractive, to develop and expand infrastructure and so on*.
In the year of 2009-2010, we export $18.36 billion. For Bangladesh the main export items are garments, textiles, jute and jute goods, ships, leather, produce, frozen fish and seafood, pharmaceuticals, ceramics, cement. Our main export partners are US 31.8%, Germany 10.9%, UK 7.9%, France 5.2%, Netherlands 5.2%, Kuwait 4.9%, Japan 4.5%,
Italy 4.42% (2000). However, we fail to achieve our export objectives due to political disturbance, economical condition, natural disaster and so on. Every year we are exporting less and importing more. As a result, it create a negative impacts on our economy and price of goods are going up. Because of this unstable economic condition is arising day by day.
The economy of Bangladesh is constituted by that of developing country. Its per capital income in 2008 was est. US$1,500. This is lower than India and Pakistan. Bangladesh ranked as the 48th largest economy in the world in 2008. In Bangladesh the economy has grown at the rate of 6-7% p.a. Due to infrastructure problems in transportation, communications, power supply and water distribution Bangladesh can not able to achieve it export objectives. These are the reason, which influence to increase the price of necessary goods.
Objectives ( Export policy 1997-2002) The principal objectives of this policy are :
1. To achieve optimum national growth through increase of export in regional and international market;
2.. To narrow down the gap between the country’s export earning and import payment through achievement of the export targets ;
3.. To undertake timely steps for production of exportable goods at a competitive price with a view to exporting and strengthening existing export markets and making dent in new markets;
4.. To take the highest advantage of entering into the post Uruguay liberalized and globalized international market;
5. To make our exportable items more attractive to the market through product diversification and quality improvement;
6.. To establish backward linkage industries and services with a view to using more indigenous raw materials, expand the product base and identify and export higher value added products ;
7. To simplify export procedures and to rationalize and solidify export incentives;
8. To develop and expand infrastructure ;
9. To develop trained human resources in the export sector;
10. To raise the quality and grading of export products to internation
Import According to the Import Policy 1997-2002 the main objectives are to make the import policy compatible with the changes in world-market, to ensure the growth of industries and so on*.
In the year of 2008 Bangladesh imports$20.205 billion. Our main imported items are machinery and equipment, chemicals, iron and steel, raw cotton, food, crude oil and petroleum products. Our main import partners are China 11.4%, India 9.1%, Singapore 8.5%, Hong Kong 7.1%, Japan 6.5%.
Government is sincerely committed to fostering a gradual development of free market economy in the light of GATT agreement. For the interest of export promotion
The Solow Swan model of economic growth
1.0 Purpose Examine aspects of the Solow-Swan model of economic growth and identify whether capital accumulation has been the cause for growth in the cases of South Korea and Australia.
2.0 The Solow-Swan Model in brief The model shows how growth in capital stock (KM) and labour (L) affect economic growth (Y). It assumes that there is diminishing marginal returns for labour and capital considered separately as inputs and constant returns to scale when taken together.
Mathematically, this is expressed as:
Y = AK α L 1-α (from Cobb-Douglas Production function, where Y= National Income, K=Capital, L= Labour, A= Total Factor Productivity and 0<α<1)
y = Y/L = AKα L 1-α/L = AKα/Lα= Akα
i.e y = Akα (GDP per worker is a function of Capital accumulation per worker)
A is the Total Factor Productivity function often interpreted as ‘technology’ or ‘knowledge’.
The above production function is combined with a constant savings rate to predict that long term growth occurs through capital accumulation. Since there are diminishing returns to capital, then economies would hit a ‘steady state’ where the rate of depreciation of old capital is just equal to the rate of replacement of capital stock. All economies tend to approach this steady state in the long run. (Solow 1956)
3.0 Key predictions of the Solow-Swan model for empirical verification: 1. Is there a positive co-relation between the indicators of capital accumulation and economic growth as the model predicts?
2. If growth is indeed due to capital accumulation, then growth will be strongest when the countries have begun accumulation of capital and will slow down as capital accumulation progresses. Is this empirically observed?
3. The rate of interest i.e rate of return on capital should be highest in countries with lower labour productivity (seen from equation above) hence capital should flow from higher labour productive countries to lower. This would in turn cause faster development of the underdeveloped nations, and ultimately convergence. Has this been observed?
4.0 Empirical test of the Solow-Swan Model 4.1 Choice of Indicators: The predictions of the model are tested by comparing Y/L with first, capital accumulation and then, human capital accumulation.
For Capital accumulation, the following indicators are chosen:
CO2 emissions (kt) : As the level of industrial activity over the years has increased, the CO2 emissions would have also increased proportionately. Therefore the level of CO2 emissions each year can be a fair indicator of the amount of capital stock accumulated.
GDP per capita (constant LCU): The increase in capital stock accumulated will eventually translate into higher GDP, thereby increasing the per capita GDP. So GDP per capita can be a fair indicator of the capital stock accumulated.
Gross Fixed Capital Formation (constant LCU): this measure directly indicates the extent of capital stock accumulated. In the Solow-Swan model itself, investment is considered a direct determinant of growth.
For Human Capital accumulation, the following indicators are chosen:
Labor Participation rate, female (% of female population 15 ) : an increased presence of women in the labor force indicates that the status of women has improved. Therefore a higher participation can be said to be a fair indicator that the human capital has grown.
Age dependency ratio (% of working-age population): a higher dependency ratio reflects lower human capital development and vice versa. This is because, a population with high dependency rates in working population indicates high unemployment as well as lower labor productivity.
Scientific and technical journal articles: the number of articles reflects the educational level and the skill levels of the general population. The higher the human capital, more will be the demand and supply of scientific articles.
4.2 Results of Regression: R2 Value/coefficient for Indicators and Y/L
Capital Accumulation (R2) 0.866
0.997 CO2 Emission
GDP per capita
K*-K (point estimates)
Gross Fixed Capital Formation
Human Capital Accumulation (R2) 0.798
0.997 Labor Participation rate
Age Dependency Ratio
No. of Scientific Articles published
4.3 Analysis of Results: (Refer enclosed excel sheet) The graphs for K*-K for South Korea shows that initially there was little difference between the steady state and the current state of economic growth. Gradually this gap widened, and in the past decade this gap has reduced once again.
This shows that South Korea has attained its level of steady state through capital accumulation
The graph for K*-K for Australia does not show any regular pattern. Instead there is a zig-zag pattern along the horizontal axis, with the growth rate having surpassed the ideal state in some years and having fallen below in others.
This reflects that capital accumulation alone perhaps cannot explain the differences in K*-K. the shifts in steady state are perhaps caused by some other factor.
Overall, for South Korea there is a very strong correlation between Capital accumulation and productivity of labour. Australia also exhibits this relationship, albeit to a slightly lesser degree.
For Australia, it is seen that the regression coefficient for GDP per capita and Y/L is negative. One of the reasons for this could be that the capital per worker rate in the Australian economy has been considerably below the long run equilibrium steady state, therefore there would have been higher returns to capital and hence a lower Y/L value during these periods
Also, there is a very strong correlation between the indicators of Human Capital Accumulation and productivity of labour for both Australia and South Korea.
4.4 Discrepancies of empirical findings with Solow Model : 1. For both countries, the GDP growth does not appear to be slowing down with increase in capital stock accumulation. The following two charts depict this fact :
GDP .v. Capital Stock (AUSTRALIA)
GDP .v. Capital Stock (SOUTH KOREA)
2. Also, regression results between Y/L and Population Growth rate and Gross savings rate of Australia and South Korea, are not consistent with the expected findings from Solow model.
SUMMARY OUTPUT of Regression of Y/L with Gross savings Rate and Population Growth for South Korea Regression Statistics
Adjusted R Square
Gross Savings rate
SUMMARY OUTPUT of Regression of Y/L with Population growth and Savings Rate of Australia Regression Statistics
Adjusted R Square
Population Growth rate
Gross savings rate
(All Data from WDI,2009) From the Solow model, it would be expected that Y/L is positively correlated with savings rate and negatively correlated population growth rate. However, this is not entirely observed above.
5.0 Theoretical explanation for empirical observations Role of Technology So, there appears some other factors at work apart from capital accumulation that is increasing GDP growth in spite of increase in capital accumulation, and causing distortions in relation of Y/L with population growth rate and savings rate. Solow himself has offered an exogenous factor, i.e technology. As technological developments and innovations begin to appear in the economy, this moves the steady state up enabling the economy to keep experiencing economic growth without the effects of diminishing returns on capital setting in.
Role of Human Capital Mankiw, Romer and Weil (Mankiw 1992) offered another improvement over the Solow model. Through their study, they found that as Solow predicted Y/L was positively correlated with rate of savings and negatively correlated with population growth. However, they found that the share of physical capital in the total factor income was very high compared to what was empirically observed in the U.S economy. This led them to propose an ‘augmented Solow model’ wherein human capital accumulation is also considered as a factor of production along with capital and labour. From our regression data above, it is already seen that indicators of human capital accumulation and Y/L show a very strong correlation.
Openness of Economy The Solow-Swan model assumes that it is a closed economy. However in reality, much of South Korea’s growth was export driven. Sachs and Warner (Sachs 1997) have argued that countries with a liberal trade policy will experience higher growth. They have defined openness as the absence of non tariff barrier, more than 40% tariff rate, and a significant black exchange rate market, socialist economic system, and state monopoly of major export. (Sachs 1997)
Role of Institutions and Government policies J. Schumpeter has shown the importance of institutions in savings decisions and economic development. They have a direct bearing on the capital accumulation in a country. (Schumpeter 1912) Further the regulatory climate in the country and institutional norms also influence growth.
Data Deficiencies It is also possible that the above results are empirically incorrect due to the following errors:
Regression has been limited to only 16 years
Inaccuracy of historical data compared to current data
Incorrect choice of Indicators.