Tracing Trade Structure and Potentialities of Bangladesh with Some Selected Economies: A Gravity Model Analysis
DOI:
https://doi.org/10.69728/jst.v11.49Keywords:
Gravity Model, International Trade, Linder Hypothesis, PCSE Model, RemotenessAbstract
International trade plays a crucial role in Bangladesh’s economy, influencing key macroeconomic indicators such as employment and the balance of payments. This study uses an augmented gravity model of international trade to examine the factors influencing Bangladesh’s trade performance with 29 trading partners from 1999 to 2019. The results show that Bangladesh’s national income, the partner’s national income, and the relative price of its currency have a positive and statistically significant impact on trade. Additionally, two new variables: “economic remoteness,” which measures each country’s geographic distance from global economic activity, and “per capita gross domestic product difference,” which measures economic disparity between the two countries, both of which have an inverse influence on the country’s foreign trade. Furthermore, affiliations to religion and regional alliances have no meaningful influence on Bangladesh’s foreign trade. The study recommends that policymakers focus on boosting national income, stabilizing the relative price of Bangladesh’s currency, and fostering stronger economic relationships with key trading partners. Moreover, efforts to reduce economic remoteness and bridge the per capita GDP disparity with trading partners could further enhance trade flows. These policy actions could significantly optimize Bangladesh’s trade performance and contribute to broader economic growth. Despite its geographical challenges, Bangladesh’s trade performance has slightly exceeded gravity model predictions, suggesting untapped potential for further growth.
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