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Contribution of Service Sector on GDP in Bangladesh from 1971 to 2020

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46 ATSK Journal of Economics, Volume 1, Issue 1, Article 5, 46-53

Contribution of Service Sector on GDP in Bangladesh

from 1971 to 2020
Tasqurun Nessa
Department of Economics, Asian University of Bangladesh, Dhaka, Bangladesh
Email: tasqurun@gmail.com
Abstract: The Bangladesh economy is dominated by the service sector. According to Bangladesh Economic Review
(2008), Bangladesh's major service sub-sectors contain wholesale and retail, transportation, storage and communications,
real estate, rental, commercial and community activities etc. This paper is based on the secondary data. In this paper I
have tried to present the trend of contribution to GDP of the service sector in Bangladesh from 1971 to 2020. According
to the latest data of Statista 2020, the contribution of agriculture, industry and service sector to the country’s GDP are
respectively 13.07%, 28.54% and 52.56% in 2018. But in the 1971-1980 decade there were different situations. That time
the contribution of agriculture, industry and service sector to the country’s GDP were respectively 44%, 11% and 45%
(Source: World Bank). Although the service sector is the largest contributor to the country's earnings, agriculture is the
largest contributor to Bangladesh's employment. About 40% of the population work in agriculture, 39% population work
in service and about 20% population work in the industry sector. (World Bank, 29 September 2019). In this paper I have
also examined the growth rate of the service sector and the contribution of the sub-sector of the service sector to GDP in
Bangladesh. The growth rate of the service sector is almost steady from 5.43% in 2000-01 to 6.80 in 2018-19. All the sub
sectors of service have increased from 1995-96 to 2017-18 except Real Estate, Renting and Business Activity which have
decreased.
Keywords: Bangladesh; Base year of Calculating GDP; GDP; Service sector.

1.1. BASE YEAR OF CALCULATING

1. INTRODUCTION
GDP IN BANGLADESH
The economy of Bangladesh is composed of The first publication of BSS is titled "Twenty
three main sectors. These are agriculture, industry Years of National Accounting of Bangladesh"
and service. Bangladesh Bureau of Statistics (BBS) published in July 1993, covered data for the period
measures the country's economic size taking into 1972-73 through 1991-92 and used 1984-85 as
account 15 sectors. At present the Bangladesh base year for constant price estimates. The second
economy is dominated by the service sector. one is Sources and Methods of National Accounts
According to Bangladesh Economic Review published in FY 2000 for documenting the revision
(2008), Bangladesh's major service sub-sectors and rebasing of national accounts from 1984-85 to
contain wholesale and retail, transportation, 1995-96 (Bangladesh National Accounts Statistics,
storage and communications, real estate, rental, 2014). Abul Kalam Azad, the director of national
commercial and community activities etc. In this accounting wing (NAW) under BBS told a new
paper I have tried to present the trend of base year for calculating the GDP effective from
contribution of the service sector to Gross July 2020 and expected to raise the size of the
Domestic Product GDP in Bangladesh from 1971 economy by 10%. Under rebasing procedure, the
to 2020. Although the service sector is the largest fiscal year 2015-16 (FY ‘16) will be the new base
contributor to the country's earnings, agriculture is year replacing the existing FY 2005-06.
the largest contributor to Bangladesh's Bangladesh did it in 2013 by replacing the FY
employment. About 40% of the population work in 1995-96 as base year. That time the economy
agriculture, 39% population work in service and expanded by around 12%. So, the base years of
about 20% population work in the industry sector. Bangladesh are 1984-85, 1995-96, 2005-06 and
(World Bank, 29 September 2019). Service sector 2015-16 respectively first, second, third and fourth.
is the engine of economic growth. So, the
contribution of the service sector to GDP is very
important.
47 ATSK Journal of Economics Tasqurun Nessa

1.2. 3 MAIN SECTORS IN 11. Real Estate, Renting and Business Activity
BANGLADESH 12. Public Adm. and Defense
The economy of Bangladesh is composed of three 13. Education
main sectors. These are 14. Health and social work
i) Agriculture, 15. Community, social and Personal services
ii) Industry and
Table 1 shows 15 sub-sectors which is used to
iii) Service. calculate GDP in Bangladesh at a glance. Service
sector includes wholesale and retail trade; repair of
1.3. THERE ARE 15 SUB-SECTORS motor vehicles, motorcycles and personal and
WHICH IS USED TO CALCULATE household goods, hotels and restaurants, transport,
GDP IN BANGLADESH storage and communication, financial
intermediations, Real estate, tenting and business
The agriculture sector is the extraction of raw activity, Public administration and defense,
materials. The manufacturing industry takes raw education, health and social work, community,
materials and combines them to produce a higher social and personal services.
value added finished product. The service sector is
concerned with the intangible aspect of offering
services to consumers. The main three sectors of
2. OBJECTIVE OF THE
Bangladesh were divided into15 sub-sectors. STUDY
Bangladesh Bureau of Statistics (BBS) measures
the country's economic size taking into account 15 The principal objective of this study is to
sectors which are mentioned in Table 1. evaluate the contribution of the service sector. To
accomplish this basic objective, following specific
Table 1: At a glance 15 sub-sectors which is used objectives which will be covered by this paper are
to calculate GDP in Bangladesh given below.
1. Agriculture 1. To observe contribution of service sector on
1. Agriculture and Forestry GDP in Bangladesh
i) Crops and Horticulture 2. To examine the contribution of sub-sectors of
ii) Animal Farming service sector on GDP in Bangladesh
iii) Forest and Related Services 3. To analyze the growth rate of service sector in
2. Fishing Bangladesh
2. Industry 3. LITERATURE REVIEW
3. Mining and Quarrying
Yousuf et al. (2019) have examined the
4. Manufacturing contribution of the service related sector in the
i) Large and Medium Scale economic growth of Bangladesh. They used the
ii) Small Scale Gross domestic product (GDP) as a measure of
economic growth for Bangladesh. They apply
5. Electricity, Gas, Water Supply various econometric tools like as Unit Root test,
6. Construction Granger causality test, ARDL Bound test, Error
3. Services correction model and Cointegration test to
investigate the causal relationship and the intensity
7. Wholesale and Retail Trade, Repair of Motor of the relationship between the service related
Vehicles, Motorcycles, Personal and Household sector and gross domestic product or economic
Goods
growth. Granger causality test shows the presence
8. Hotels and Restaurants of unidirectional granger causality from the service
9. Transport, Storage and Communication related sector to gross domestic product. The error
correction term implies that the short-run
10. Financial Intermediations disequilibrium is adjusted with the long-run at the
Contribution of Service Sector on GDP in Bangladesh from 1971 to 2020 ATSK Journal of Economics 48

speed of 17 percent. Moreover, ARDL bound organizations of the Bangladesh government, local
approach indicates the service related sector and and international journals. This study was
gross domestic product growth are correlated both conducted in the months from November 2021 to
in short-run and long-run. The result shows that 1% January 2022. This study is descriptive, conceptual
expansion in the service-related sector will result in and depends on historical facts and figures. It is
an increase of 0.64% gross domestic product or basically based on BBS’s data, newspaper, journal
economic growth in the short-run and 0.75% of and intellectual opinions of authors.
GDP in the long-run.
Austin Robinson (September 1973) discussed 5. CONTRIBUTION OF
the economic prospects of Bangladesh. He SERVICE SECTOR ON GDP
described food grain requirements and supplies,
industrial output, production of various crops, IN BANGLADESH
assumed sectoral rates of annual growth etc. In
1961, at the time of the last census, 85% of the Gross domestic product (GDP) refers to the
actively occupied population was engaged in market value of all final goods and services
agriculture. Only 4-3% were then engaged in produced within a country in a given period. The
manufacturing and about 9% in services of economy of Bangladesh is composed of three main
different kinds. sectors 1) Agriculture, 2) Industry and 3) Service.
The Bangladesh economy is dominated by the
Bangladesh National Accounts Statistics service sector. According to the latest data of
(Revised estimates from 1995-96 to 2012-13 with Statista 2020, the contribution of agriculture,
base year 2005- 06, Statistics and Informatics industry and service sector to the country’s GDP
Division, BBS), Ministry of Planning, August 2014 are respectively 13.07%, 28.54% and 52.56% in
has shown the economic activities which reflect the
2018 (Source: Statista 2020). But in the 1971-1980
overall performance of macroeconomic scenario of
decade there were different situations. That time
our economy, the effective way to measure the
the contribution of agriculture, industry and service
level of economic development and growth, the
sector to the country’s GDP are respectively 44%,
change in consumption, savings, investment, debts
11% and 45% (Source: World Bank).
and wealth for the total economy.
Table 2 and graph 1 show the share of service
Ismail et al (2012) analyzed the economy of
sector in the gross domestic product (GDP) from
Bangladesh and the impact of trade liberalization
1941-2011 according to decade. From table 2 (data
of the service sector as well as to provide the
is taken from World Bank data bank) the graph 1 is
recommendations for development of the service
drawn. In the service sector the contribution to
sector. It has taken a sample of ten years' data of
GDP was 26% in the 2001-2011 decade. Gradually
GDP from 2000-01 to 2009-10 for analyzing the
it has increased over the decade and it has become
comparison of the service sector with other sectors
52% in the 2001-2011 decade. It is notable that in
(industry and agriculture). The paper emphasizes
the 1991-2000 decade the contribution of service
for the development of the tourism sector,
sector was 60% which was highest.
Software, transportation and financial service,
education with quality, etc. Table 2: Contribution of service sector in
Percentage over the Decade (1941-2011)
H. Plecher (Nov 18, 2020) has shown the share
of economic sectors in the gross domestic product Year Service Year Service
(GDP) in Bangladesh from 2009 to 2019. In 2019,
the share of agriculture in Bangladesh's gross 1941-1950 26 1981-1990 56
domestic product was 12.68 percent, industry 1951-1960 33 1991-2000 60
contributed approximately 29.65 percent and the 1961-1970 35 2001-2011 52
services sector contributed about 52.85 percent.
1971-1980 45
4. METHODOLOGY
In this study I used secondary data published in
both printed and electronic sources of different
49 ATSK Journal of Economics Tasqurun Nessa

Graph 1: Contribution of service sector in Percentage over the Decade (1941-2011)

Service
70
60
50
40
30 Service
20
10
0
1941-1950 1951-1960 1961-1970 1971-1980 1981-1990 1991-2000 2001-2011

Table 3: Contribution of service sector on GDP taken from Bangladesh economic review, 2010 and
over the year in Bangladesh (2008-2018) Statista 2021) the graph 2 is drawn.
Year Services Table 4: Growth Rate of GDP service sector
2008 52.93 Year GDP Service
2009 53.32 2001- 02 4.42 5.43
2010 53.50 2002- 03 5.26 5.38
2011 53.05 2003- 04 6.27 5.66
2012 53.15 2004- 05 5.38 6.36
2013 53.39 2005- 06 6.63 6.40
2014 53.64 2006- 07 6.43 6.90
2015 53.71 2007- 08 6.19 6.52
2016 53.67 2008- 09 5.74 6.32
2017 53.48 2009- 10 6.00 6.59
2018 52.96 2010-11 6.40 -
Table 3 shows the share of service sectors in the 2011-12 6.50 -
gross domestic product (GDP) in Bangladesh over 2012-13 6.00 6.60
the year from 2008 to 2018. The trend of the
contribution of service has remained almost the 2013-14 6.60 5.50
same on GDP from 2008 to 2018. We can see the 2014-15 6.50 5.60
contribution of the service sector was 53.71% in
2015-16 7.10 5.80
2015, but it decreased and became 52.96% in 2018.
2016-17 7.20 6.20
6. GROWTH RATE OF GDP 2017-18 7.80 6.40
AND SERVICE SECTOR IN 2018-19 8.15 6.80
BANGLADESH
Table 4 and graph 2 show the growth rate of
GDP and service sector in Bangladesh over the
year from 2001 to 2019. From the table 4 (data is
Contribution of Service Sector on GDP in Bangladesh from 1971 to 2020 ATSK Journal of Economics 50

Ghaph 2: Growth Rate of GDP and service sector

9
8
7
6
5
4 GDP
3 Service
2
1
0

6.1. GROWTH RATE OF GDP decreased. This paper has presented the trend of
service sector’s contribution on GDP in Table 5.
The growth rates of GDP are 4.42%, 6.00%, and
8.15% in 2001-02, 2009-10 and 2018-19 7.1. WHOLESALE AND RETAIL
respectively. From Table 4 we can see the growth TRADE; REPAIR OF MOTOR
rate of GDP has increased gradually. The growth VEHICLES, MOTORCYCLES AND
rate of GDP is almost same as service sector in
2018-19.
PERSONAL AND HOUSEHOLD
GOODS
6.2. GROWTH RATE OF SERVICE
Wholesale and retail trade; repair of motor
SECTORS vehicles, motorcycles and personal and household
Service sector is important one. Service sector goods have increased from 13.12% in 1995-96 to
has the growing potential of economic growth and 13.63% 1.53% in 2005-06, 13.40% in 2013-14 and
poverty alleviation in Bangladesh. From the 13.07% in 2017-18.
comparative appearance of the sectors, it is found
that service sector is sustainable in terms of growth
7.2. HOTELS AND RESTAURANTS
and contribution to total GDP. The growth rate of Hotels and restaurants have increased almost
service sector is almost steady from 5.43% in 2000- double from 0.51% in 1995-96 to 0.76% 1.53% in
01 to 6.80 in 2018-19. The growth rate of service 2005-06, 1.01% in 2013-14 and % in 2017-18.
sectors are 5.43% in 2000-01 and 6.90% in 2006-
07. But after 2006-07 the growth rate of service 7.3. TRANSPORT, STORAGE AND
sectors has decreased until 2014-15. The growth COMMUNICATION
rate of service sectors has increased from 2015-16 Transport, storage and communication have
and recently it is 6.80 in 2018-19. increased from 8.73% in 1995-96 to 10.46% 1.53%
in 2005-06, 10.61% in 2013-14 and 1.00 % in 9.65
7. TREND OF SERVICE 2017-18.
SECTOR’S CONTRIBUTION 7.4. FINANCIAL
ON GDP INTERMEDIATIONS
The service sector is the half of the total sector Financial intermediations have increased from
of the economy. All the sub sectors of service have 1.58% in 1995-96 to 3.11% 1.53% in 2005-06,
increased from 1995-96 to 2017-18 except Real 3.85% in 2013-14 and 3.96 % in 2017-18.
Estate, Renting and Business Activity which have
51 ATSK Journal of Economics Tasqurun Nessa

Table 5: Trend of sub-sector wise contribution on (GDP) of service at current price in Bangladesh
Sector Sub-sectors 1995 2005 2013 2017
-96 -06 -14 -18
1. Wholesale and Retail Trade, Repair of Motor 13.12 13.63 13.40 13.07
Vehicles, Motorcycles, Personal and Household Goods
2. Hotels and Restaurants 0.51 0.76 1.01 1.00
3. Transport, Storage and Communication 8.73 10.16 10.61 9.65
Land Transport 6.24 7.17 7.90 7.42
Water transport 1.22 1.03 0.63 0.55
Air transport 0.14 0.12 0.09 0.07
Support transport services, storage 0.48 0.54 0.51 0.44
Post and Tele communications 0.65 1.30 1.48 1.16
Services
4. Financial Intermediations 1.58 3.11 3.85 3.96
Monetary intermediation (Banks) 1.41 2.67 3.21 3.39
Insurance 0.12 0.29 0.42 0.35
Other financial intermediation 0.05 0.14 0.22 0.22
5. Real Estate, Renting and Business Activity 9.70 8.29 7.08 7.51
6. Public Administration and Defense 2.54 3.08 3.39 4.38
7. Education 2.36 2.18 2.57 3.07
8. Health and social work 2.08 2.03 2.09 2.08
9. Community, social and Personal services 12.11 12.37 12.24 11.17

7.5. REAL ESTATE, RENTING AND 7.9. COMMUNITY, SOCIAL AND

BUSINESS ACTIVITY PERSONAL SERVICES
Real estate, renting and business activity have Community, social and personal services has
decreased from 9.70% in 1995-96 to 8.29%1.53% increased from 12.11% in 1995-96 to 12.37%
in 2005-06, 7.08% in 2013-14 and 7.51% in 2017- 1.53% in 2005-06, 12.24% in 2013-14 and 11.17%
18. in 2017-18.
7.6. PUBLIC ADMINISTRATION
AND DEFENSE 8. RECOMMENDATION
Public administration and defense has increased
The contribution of the service sector is highest
from 2.54% in 1995-96 to 3.08% 1.53% in 2005-
in developed countries and contribution of the
06, 3.39% in 2013-14 and 4.38 % in 2017-18.
agriculture sector is highest in underdeveloped
7.7. EDUCATION countries. For Economic development we always
think concerning industry and agriculture sectors
Education has increased from 2.36% in 1995-96 rather service sectors. But I think priority should be
to 2.18% 1.53% in 2005-06, 2.57% in 2013-14 and given to the service sector. As the contribution of
3.07% in 2017-18. service sector is half of total GDP in Bangladesh.
7.8. HEALTH AND SOCIAL WORK The major sector in the economy is service sector.
So service sector occupies a major share of total
Health and social work has increased from economic sectors. As a result, importance of
2.08% in 1995-96 to 2.03% 1.53% in 2005-06, service is significant. All the sub sectors of service
2.09% in 2013-14 and 2.08% in 2017-18.
Contribution of Service Sector on GDP in Bangladesh from 1971 to 2020 ATSK Journal of Economics 52

have increased from 1995-96 to 2017-18 except become 7.51% in 2018-19. We have to take care of
Real Estate, Renting and Business Activity which this sub-sector.
have decreased. For economic development
through service sector we should take the following 9. CONCLUSION
steps.
-More trade liberalization of service sector This research article examines the share of
service sector in GDP. Service sector is the engine
-Improve Real Estate, Renting and Business
of economic growth. For economic development
Activity
we have to think about all sectors: agriculture,
8.1. MORE TRADE industry and the service sector. So, in conclusion I
LIBERALIZATION OF SERVICE would like to emphasize the importance of the
growth of the service sector to achieve economic
SECTOR development as the contribution of the service
We need more trade liberalization for the higher sector is high in developed countries. All the sub
growth of service sector to achieve economic sectors of service have increased from 1995-96 to
growth. We have almost 60% labour force of our 2017-18 except Real Estate, Renting and Business
total population (BBS 2019). We have to use this Activity which have decreased. The growth rate of
huge labour force efficiently. service sector is almost steady from 5.43% in 2000-
01 to 6.80 in 2018-19. The growth rate of service
8.2. IMPROVE REAL ESTATE, sectors are 5.43% in 2000-01 and 6.90% in 2006-
RENTING AND BUSINESS 07. But after 2006-07 the growth rate of service
ACTIVITY sectors has decreased until 2014-15. The growth
rate of service sectors has increased from 2015-16
Real estate, renting and business activity are and recently it is 6.80 in 2018-19. For economic
important sub-sector of service sector. We need to development we should take the some steps to
improve real estate, renting and business activity. improve our service sector. These are more trade
Because the contribution of this sub-sector was liberalization of service sector and improve Real
9.70% in 1995-96 and it has decreased. It has Estate, Renting and Business Activity.

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 53 ATSK Journal of Economics Tasqurun Nessa

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Received on 27-02-2022 Accepted on 05-03-2022 Published on 21-04-2022

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