Agriculture and labor-intensive manufacturing remain the 2 major pillars of the Bangladeshi national economy. Historically, a tropical climate and warm temperatures throughout the year made it possible to grow 2 or 3 crops of rice each year, although floods and cyclones regularly damaged crop yield. Flourishing trade, manufacturing—traditionally in light manufacturing and agricultural processing—along with the wealth of the region's nobility, attracted English, French, and Dutch traders. The British East India Company had slowly but steadily advanced into the region in the 17th and 18th centuries, acquiring trade privileges from the Mogul emperors and exploiting rivalries between local rulers, and gradually established control over the trade between India and Europe. The company and its often corrupt administration had greatly benefited from the trade between India and Europe. The British East India Company established control over administration of the Bengal province in 1765. However, in 1858 the company was abolished, and the British crown assumed direct control over British India, in response to the local uprising of 1857 to 1858 and to growing evidence of the company's inefficiency. Throughout the colonial era, East Bengal (the territory of modern Bangladesh) received very limited investments in its industrial sector or toward development of its transportation system, and largely relied on the production and export of its agricultural goods, including jute, rice, and tea. The British colonial rule in India was accompanied by uprisings, greater polarization of society, and a decline in the traditional values and institutions of the society; nevertheless, it included India in the global trade of the early capitalist era and introduced the British legal and political systems and the technological innovations of that era.
In August 1947, India was granted independence within the British Commonwealth and was divided into the dominions of India and Pakistan. Pakistan, which included the areas populated predominantly by the Muslims, was itself divided with the West Pakistan comprising the area now known as Pakistan, and East Pakistan, occupying what had been Eastern Bengal. Powerful West Pakistan was politically and economically dominant over East Pakistan, giving rise to a secessionist movement in the eastern province. Despite attempts to ease the tensions, these factions gradually grew into open hostility and in 1971 a brief but bloody civil war flared up that lasted for 2 weeks and ended with the intervention of Indian troops. On 17 December 1971 a new government in Dhaka declared the independence of the new state, Bangladesh.
After achieving independence in 1971, Bangladesh confronted the challenging task of developing and diversifying its economy, as the country had very limited natural resources and arable land with which to support its rapidly growing population. The task was complicated by years of political turbulence and military coups (in 1975, 1981, and 1982) that did little to attract international investors and by devastating natural disasters that regularly visited Bangladesh in the 1970s and 1980s. By the beginning of the 21st century, according to the World Bank, Bangladesh had become one of the poorest and least-developed economies in Asia.
During the 1970s and 1980s the government of Bangladesh promoted economic development based on heavy state involvement both in economic management and economic planning. In fact, after achieving independence, the government led by the Awami League, nationalized large and medium-sized enterprises in jute, cotton textile, sugar processing, banking and insurances. Its economic policies were centered on 5-year plans (the first 5-year plan was launched in 1973), which aimed at development and public resource allocation modeled on the Soviet 5-year experience. However, the Bangladeshi experiment with socialism did not last long, and the government eschewed radical changes. The country's average gross domestic product (GDP) growth of around 3.3 percent in the 1970s and 4.4 percent in the 1980s (World Bank calculation) were very impressive, but this growth was offset by even more rapid growth of the population.
In 1991 the first free and fair election was held in Bangladesh and the Bangladesh National Party (BNP) won the election. The new civilian government considerably revised the economic policies of the previous government, introducing elements of free market economy, limiting state intervention, downsizing the government, launching privatization and attempting to attract foreign direct investments (FDIs) and technologies. The political stability of the 1990s and the new economic policies attracted international investors and greatly contributed to the economic growth of around 5 percent throughout the 1990s. However, Bangladesh still depends heavily on international assistance and loans, as well as remittances from Bangladeshis working abroad. According to the International Monetary Fund's (IMF) Country Report, in 1999 the country's external debt stood at US$15.145 billion, or 35 percent of GDP. This amount is relatively small according to international standards and mainly due to past capital account restrictions. According to the IMF, one of the peculiarities of the Bangladeshi foreign debt that makes it different from that of Indonesia or Malaysia is that it is almost entirely public, with private debt accounting for a low 5 percent of the total country's debt. Bangladeshi official reserves stood at a level of US$1.522 billion in 1999.
The structure of the Bangladeshi economy changed gradually over the last 3 decades. According to the World Bank, the contribution of agriculture to the country's GDP has been steadily declining from 55 percent in 1970 to 31.6 in 1999, although it still provides employment to large numbers of people. Bangladesh remains one of the world's leading producers of jute and rice, although most of the rice is for domestic consumption rather than export. The proportion of manufactured production grew from 9 percent of GDP in 1970 to 19.3 percent of GDP in 1999. Manufactured products accounted for around 60 percent of gross export earnings in 1999, with clothing goods becoming the single most important product. Tourism is a very small but rapidly growing sector of the economy that increased by around 42 percent between 1993 and 1998. Approximately 171,000 tourists visited the country in 1999, contributing Tk2.4 billion to the national economy. By comparison, tiny Singapore attracts a similar number of tourists every week.
For a long time Bangladesh struggled to diversify its economy. Large and medium state-owned enterprises dominate the manufacturing sector, although a number of private enterprises were established during the 1990s. Medium and small farms dominate the agricultural sector, and many farmers are still engaged in subsistence agriculture. Meanwhile, a number of medium and small, usually family-owned, enterprises dominate the service sector, especially retail . Bangladesh tried to catch up with the information technologies boom in the 1990s, but unlike neighboring India, it failed to promote this sector of its economy on a similar scale.
Economic growth and stability failed to bring economic prosperity to a large proportion of the population, especially in rural areas. Since the 1970s there has been an outflow of large numbers of the young and the most talented people from the country through various legal and illegal channels. Allegedly, organized criminal groups connected to drug trafficking control this outflow. Drugs are another important issue, as Bangladesh shares a border with Burma (Myanmar), which is a part of the world's largest opium producing region called the "Golden Triangle" (an area between Burma, Laos, and Thailand). The shadow economy is believed to be very large due to incomplete economic activities data collection, tax evasion, and a strong tradition of cash economy, although this shadow economy is not necessarily related to organized criminal activities. In 1996 a national account task force was formed to upgrade the outdated and inefficient system of national accounting, having among other goals to deal with the problem of calculating and capturing shadow economy activities.