An Empirical Analysis
This paper investigates the causal nexus between export, import, remittance and GDP growth for Bangladesh using annual data from 1976 to 2005. The paper uses time series econometrics tools to investigate the relationship adding import and remittance in the model. Study finds limited support in favor of export-led growth hypothesis for Bangladesh as exports, imports and remittance cause GDP growth only in the short run. The causal nexus is unidirectional. JEL Classifications: C32, F24, F43
Keywords: Exports, Imports, Remittances, Economic Growth and Time-Series Models
GDP growth of Bangladesh has been 5 per cent and above in the past decade or so with increasing exports, imports and remittance. Ratio of total trade (exports plus imports) to GDP rose from 17.6 percent in 1990 to around 29.4 percent in 2002 (World Bank, 2005). Export growth is often considered to be a principal determinant of production and employment growth in an economy. It is also argued that foreign currency made available through export earnings facilitates import of capital goods, which in turn increases production potential of an economy.
Exports competition causes economies of scale and acceleration of technological progress (Ramos, 2001). In the early years after independence in 1971, Bangladesh embarked on an inward-oriented development strategy. Accordingly, higher tariffs and quota were imposed on imports. This in turn created an anti-export bias within Bangladesh economy. However, since 1980s the policy regime shifted toward export-promotion from import substitution. Tariff rates were reduced and quotas were also abolished gradually. Industrial and trade policy were focused to promote export. Financial incentives are provided, in the form of tax exemption, on exportable commodities. Exclusive Export Processing Zones (EPZ) are established to attract foreign direct investment and...