Export, Imports, Remittance and Growth in Bangladesh: An Empirical Analysis Haydory Akbar Ahmed1 Md. Gazi Salah Uddin2
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
I. Introduction 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.
Haydory Akbar Ahmed working as Lecturer at the Economics and Social Science Department, BRAC University, Dhaka. The author’s contact address: firstname.lastname@example.org 2 Md. Gazi Salah Uddin working as Senior Lecturer, at the Business Administration Department, East West University, Dhaka. The author’s contact address: email@example.com, firstname.lastname@example.org Earlier version of this paper was presented in the seminar on ‘Developing Nations in the World Economy: Recent Issues in International Trade and the WTO’ at Jadavpur University, Kolkata during 17-18 April 2008. The authors gratefully acknowledge the constructive comments of an anonymous referee.
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H.A. Ahmed, G.S. Uddin/ Remittance and Growth in Bangladesh
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 export promotion. Foreign firms, investing in EPZs, get special preference and tax exemption facilities. State owned enterprises, nationalized in the early 1970s, are privatized or are in the process of privatization (Ahmed, 2001). The country has also experienced a change in its export composition- from primary commodities to manufacturing goods (Love and Chandra, 2005). Imports of capital machinery, intermediate goods and industrial raw materials have risen over the years. Remittance is another major source of foreign earnings for Bangladesh. Bangladeshi workers, unskilled and semi-skilled, send huge amounts of foreign currency, which at times exceeds the exports earning from goods and services. A number of empirical researches have been conducted to investigate the nexus between exports and growth in Bangladesh. However, none has taken the impact of imports and remittance on growth into account. Figure 1 show real GDP, exports, imports and remittance and each variable depicts a strong upward trend individually. In this paper we intend to investigate short and long-run dynamic impact of exports, imports and...