A historical perspective of trade liberalisation dynamics in Bangladesh: impacts of natural calamity risk, gross domestic product, foreign exchange reserve, relative price, and tariff on import demand
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Date
2023
Authors
Shikha, H.A.
Alam, M.M.
Murad, M.W.
Said, J.
Ahmed, Z.U.
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JOURNAL OF NUSANTARA STUDIES-JONUS, 2023; 8(3):177-208
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Abstract
Purpose: After the trade liberation, Bangladesh has faced the crisis of trade imbalance. Therefore, trade liberation is considered as the driving force behind the crisis. To investigate this historical allegation, this study aims at analysing the factors that determined the post trade liberalisation aggregate import demand function of Bangladesh.
Design/Methodology/Approach: Based on quarterly data from trade liberalisation period to reaching the economic stability period, 1992Q1 - 2007Q4, an autoregressive distributed lag (ARDL) approach to cointegration and an error correction model (ECM) have been utilised to estimate the impacts of natural calamity, gross domestic product, foreign exchange reserve, relative price and tariff on aggregate import demand of Bangladesh.
Findings: Empirical results revealed that the natural calamity is identified to be nonresponsive to the nation's aggregate import demand both in the short and long run. This indicates that Bangladesh can meet the natural crisis related demand by herself without influencing its aggregate import demand. Results also revealed that the import volume of Bangladesh is cointegrated with relative import price, actual GDP and real foreign exchange reserve of the country. The import demand of the country can largely be described by its real GDP, while it is found inversely associated with relative price ratio in the long run. The long run association among import demand and tariff rate indicates that trade liberalisation has a significant positive impact on the country's aggregate import demand, as well as real foreign exchange reserve, as explained by the reduction in tariff rate.
Research Implication: Developing countries like Bangladesh and the relevant business stakeholders would have considerable implications of such empirical findings with their trade policies, particularly how they should respond to unpredictable scenarios caused by the factors such as natural calamity, foreign exchange reserve, tariff, etc.
Originality Value: The originality of the study lies in its uniqueness in using the historical data and factors that no studies have so far used in analysing the import demand function of Bangladesh.
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Copyright 2023 the authors.