Bangladesh’s Trade with Asia: What Do Gravity Models Tell Us?
Rahman, Sultan Hafeez; Ibon, MD. Wahid Ferdous | March 2019
Abstract
External trade has played a crucial role in Bangladesh’s strong economic growth and structural transformation, in the backdrop of rising prosperity in Asia as a whole. This paper examines the effect of national incomes and trade costs of three key Asian sub-regions—which “powered” the overall growth and prosperity in Asia as a whole—on Bangladesh’s external trade. The paper used the gravity model of international trade to test its validity in explaining Bangladesh’s trade with the sub-regions. Alternative empirical specifications of the model were econometrically estimated. The parameter estimates indicate that the central hypothesis of the gravity model is valid, i.e., trade between any two countries is directly proportional to their national incomes and inversely proportional to their trade costs. In line with these predictions, Bangladesh’s trade with the three key Asian sub-regions were found to be positively related to their GDPs and inversely related to trade costs. The predictive power of the estimated gravity models is also high. The statistical tests relevant to the econometric estimation of the specified model and the data used were conducted to ensure that the parameter estimates were robust. The model thus provides a solid basis for forecasting medium-term trade growth with the key Asian sub-regions, and hence it has a value to Bangladesh’s planners and policymakers. The results also imply that Bangladesh should pay greater attention to reviving trade (and industry) reforms to benefit from growing prosperity in its continental neighbourhood.
Citation
Rahman, Sultan Hafeez; Ibon, MD. Wahid Ferdous. 2019. Bangladesh’s Trade with Asia: What Do Gravity Models Tell Us?. © Bangladesh Institute of Development Studies. http://hdl.handle.net/11540/14684.Keywords
Regionalism
Regional Economy
Regional Trading Arrangements
Regional Trade Integration
Regional Economic Integration
Regional Cooperation
Interregional Cooperation
Trade Disputes
Trade Barriers
Free Trade
Trade
Trade Agreements
Intraregional Trade
Border regions
Cross-border
Global value chain
Government Policy
Regional Organization
Regional Plans
Economic integration
Regional Development Bank
Preferential tariffs
International negotiation
Protectionist measures
Access to markets
Economic agreements
International trade law
Regional integration
Trade relations
Exports
Economic integration
Distribution
Development Bank
Trade policy
Small Business
Regional economics
Regional planning
Regional disparities
Interregionalism
Regional economic disparities
Regional economic blocs
Industrial arbitration
Euro
Inflation
Business
Finance
Free trade
Tariff
Economic forecasting
Environmental auditing
Cumulative effects assessment
Human rights and globalization
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http://hdl.handle.net/11540/14684Metadata
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