Analyzing Bangladesh’s middle-class social dynamics

Analyzing Bangladesh’s middle-class social dynamics is key to understanding economic growth. By decoding social factors, we can gain insights that assist decision-making.

Bangladesh is expected to witness a dramatic expansion of its middle-class over the next several years, reaching a tipping point. Currently, around one-fifth or approximately 34 million of the country’s total population belongs to the middle-class category, defined as having per capita income ranging between $2 to $3 per day. This share is projected to increase to 25% by 2025 and 33% by 2030, implying an expansion of the middle-class to about 44 million and 60 million in 2025 and 2030, respectively.
However, the size of the middle-class alone is not the only determinant of economic growth and development for a lower middle-income country like Bangladesh. The internal heterogeneity and asymmetry of this income group, which reflects the other dimensions of income distribution within the middle-class, are also significant determinants of income growth across time and space. Empirical analysis indicates that a “wealthier” middle-class has the most positive impact on economic growth.
Given the low share of “wealthier” middle-class in Bangladesh, upward mobility between subcategories of the middle-class appears to be challenging, and there is also the possibility of downward transition. Moreover, an increase in the size of the “floating class,” comprising vulnerable middle-class households that have barely escaped poverty, has negative impacts on growth. To take full advantage of the dynamics behind the expansion of the middle-class, Bangladesh should devise policies that are in line with the needs of the heterogeneous middle-class households and enhance their resilience.
Analysts identify at least three channels through which the size of the middle-class influences the growth experience of an emerging economy. Firstly, the middle-class is where entrepreneurs that foster innovation and growth emerge from. Secondly, middle-class “values” encourage the accumulation of human capital and savings. Thirdly, the consumption power of the middle-class leads to diversification and expansion of markets, allowing for the exploitation of economies of scale in production. Additionally, the middle-class may play a crucial role in better governance, demanding better public service delivery, greater accountability from public officials, and supporting growth-oriented policies.
The expansion of the middle-class is widely considered as a sign of development in a country, resulting in economic prosperity and potential for more social security. The middle-class tends to exhibit higher income elasticities of demand, especially for durables. Their preference for product differentiation leads to value-added in branding. Furthermore, they promote “middle class values” such as hard work, meritocracy, savings, and education, which contribute significantly to growth. The impetus to growth provided by the middle-class is more sustainable than export-led growth, and there is less risk of falling into the “middle income trap.” Empirical evidence across countries shows that a larger middle-class influences consumption growth primarily through higher levels of human capital accumulation.
In Bangladesh, the middle-class’s significance in growth dynamics is primarily through its contribution to factor inputs, chiefly human capital. The relationship between the middle-class and the levels of human capital is likely to be robust, positive, and highly significant. A large middle-class is also likely to be associated with higher levels of savings in the country. The middle-class matters for growth in Bangladesh due to its investments in human capital facilitated by steady employment, which is a key characteristic of being middle-class. Therefore, a strong middle-class is likely to lead to long-term development of the country by positively affecting the proximate causes of growth. In the process, a robust positive impact on consumption growth through schooling will also support increased demand for human capital during the country’s industrialization process.
Targeted policies aimed specifically at the middle-class could be more effective in the fight against poverty than policies solely aimed at helping the poor and impoverished. To nurture the middle-class, policymakers should address institutional and cultural barriers to its growth, including the need for a strong democratic culture, fair legal traditions, functioning institutions, and good governance.Bangladesh’s middle-class is on the verge of a significant expansion over the next few years. Currently, about 34 million people, or one-fifth of the country’s population, belong to the middle-class category, defined as having a per capita income range of $2 to $3 per day. By 2025, this share is expected to reach 25%, and by 2030, 33%. This means that the size of the middle-class is expected to increase to around 44 million and 60 million in 2025 and 2030, respectively.
However, for a lower middle-income country like Bangladesh, the size of the middle-class alone is not the only important factor for economic growth and development. The internal heterogeneity and asymmetry of this income group, which reflects the other dimensions of income distribution within the middle-class, are also important determinants of income growth across time and space. Empirical analysis indicates that a “wealthier” middle-class has the most positive impact on economic growth.
Upward mobility between subcategories of the middle-class in Bangladesh seems challenging given the low share of “wealthier” middle-class, and there is also the risk of downward transition. Additionally, an increase in the size of the “floating class,” which comprises vulnerable middle-class households that have barely escaped poverty, has negative impacts on growth. Bangladesh should design policies that are consistent with the needs of the heterogeneous middle-class households and increase their resilience to take full advantage of the dynamics behind the expansion of the middle-class.
There are at least three channels through which the size of the middle-class determines the growth experience of an emerging economy. The middle-class is where entrepreneurs that foster innovation and growth emerge from. Middle-class “values” encourage the accumulation of human capital and savings. The consumption power of the middle-class leads to diversification and expansion of markets, allowing for the exploitation of economies of scale in production. The middle-class may also play a crucial role in better governance, demanding better public service delivery and greater accountability from public officials, and supporting growth-oriented policies.
The expansion of the middle-class is often regarded as a sign of development in a country, resulting in economic prosperity and potential for more social security. Income elasticities of demand of the middle-class are usually greater, especially for durables. Their preference for product differentiation leads to value added in branding. They promote “middle class values” such as hard work, meritocracy, savings, and education. Their impetus to growth is more sustainable than export-led growth, and there is less risk of falling into the “middle income trap.” Cross-country empirical evidence shows that a larger middle-class influences consumption growth primarily through higher levels of human capital accumulation.
In Bangladesh, the middle-class’s importance in growth dynamics is primarily through its contribution to factor inputs, chiefly human capital. The relationship between the middle-class and the levels of human capital is likely to be robust, positive, and highly significant. A large middle-class is also likely to be associated with higher levels of savings in the country. The middle-class matters for growth in Bangladesh due to its investments in human capital facilitated by steady employment, which is a key characteristic of being middle-class. Therefore, a strong middle-class is likely to lead to long-term development of the country by positively affecting the proximate causes of growth. In the process, a robust positive impact on consumption growth through schooling will also support increased demand for human capital during the country’s industrialization process.
Policies specifically targeting the middle-class may be more effective in the fight against poverty than policies solely aimed at helping the poor and impoverished. To nurture the middle-class, policymakers should address institutional and cultural barriers to its growth, including the need for a strong democratic culture, fair legal traditions, functioning institutions, and good governance.