Export Trade of Bangladesh with Saarc Countries

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Chapter 1

Introduction

The policy of trade liberalization and free-market economy in the 1980s has created both challenges and opportunities for Bangladesh economy. The creation of the World Trade Organization has created new ways of enjoying the comparative advantage for Bangladesh. At the same time, the globalize trade scenario has opened up the structural limitations of Bangladesh economy, which needs immediate attention through the formulation of appropriate policy and actions. Bangladesh continues to suffer from a low-growth, high-poverty syndrome. However, Bangladesh has a large labor force willing to work for low wages resulting in a very competitive position for labor-intensive manufacturing exports. It has a large number of entrepreneurial businessmen who are able to develop and run small and medium scale enterprises. It has a sufficient amount of natural gas reserves which can potentially provide low-cost energy for a downstream industrial structure. With amicable and mutually beneficial regional cooperation, Bangladesh can be an ideal location for huge foreign direct investments, which can serve as a huge market for goods and services in the South Asia. The growth potential of Bangladesh is, however, limited by a high population density and limited availability of land, which results in a continuing pressure on food supply. The low-income level makes it difficult for households to save, thus constraining the domestic development efforts. The education and health levels are low, resulting in a labor force lacking the skills needed for a modern economy. In addition, the traditions of central control of the economy and the awkwardness of government policy continue to work as a deterrent against private sector investment.

Within this global and regional trade scenario, this paper attempts to provide a synopsis of Bangladesh trade with the South Asian Association for Regional Cooperation (SAARC) countries and of its policies regarding bilateral and global trade. The common structure of the economies and the same intensive price competitiveness could lead to a great deal of formal trade between Bangladesh and the SAARC countries, but this potential is yet to be realized. Bangladesh suffers from a huge trade deficit with India. This paper will lay special emphasis on the trade relations with India and the proposed South Asian Growth Quadrangle consisting of seven north-eastern states of India, Bangladesh, Nepal and Bhutan. This paper will also examine the impact of GDP and of the exchange rate and its variability on the export and import growth of Bangladesh.

This study will also examine the trade policies of Bangladesh with special reference to both nominal and effective tariff levels, and non-tariff barriers that hinder the growth of Bangladesh global trade with its neighboring countries. Intra-SAARC trade is very negligible. This study will estimate a gravity model of international trade to examine whether intra-SAARC trade is lower or higher than what is predicated by the economic model. The results of this model will help us understand the possibilities of trade creation and diversion effects resulting from the South Asian Preferential Trading Arrangements (SAPTA) among SAARC member countries. Gravity models of international trade estimate the trade flow as a function of variables that directly or indirectly affect the determinants of normal trade flow. The typical gravity model specification relates bilateral trade to income, population (or per capita income) and distance between the trading partners. If one finds a positive coefficient on the dummy variable indicating that two countries, both of which participate in the same preferential arrangement, trade more with one another than predicted by their incomes and distance, then the conclusion drawn is that the arrangement is trade-creating for its members. This paper will review the tariff concessions agreed upon by the SAARC member countries....
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