Determinants of Bangladesh’s Leather Exports to Its Major Trade Partners: A Panel Gravity Model Approach

Abstract

The purpose of this research is to study the determinants of export, import and overall trade performance. The article employed the panel gravity model along with the analytical approaches of the fixed-effects, random-effects, Poisson Pseudo-Maximum-Likelihood (PPML) and Heckman selection models. This analysis is based on a panel data set from 1989 to 2015 (27 years) for a total of 20 selected largest leather importing partners. The findings are consistent with the Heckscher–Ohlin (H–O) theory, meaning that Bangladesh could chase for the comparative advantage in the leather industry through the effective planning and efficient utilization of its abundant population of 163 million. It is demonstrated that the wealthier nations are likely to trade in the Bangladeshi leather sector. But the key problem in the ways of trade is the presence of high trade and transport costs. Among the major causes of high-trade costs in Bangladesh are the cumbersome and complex cross-border trading practices, which also increase the possibility of corruption. Moreover, the trading of leather products is negatively influenced by the COVID-19. These problems and issues need to be addressed to facilitate Bangladesh’s leather exports. Also, Bangladesh is a founding member of China’s Belt and Road Initiative (BRI). Exporting to Chinese consumer markets and using network connectivity to boost leather trade with other participating countries in the BRI would create a considerable growth potential for Bangladesh. To this end, the issue of technological developments and research innovations could be prioritized. This work provides both industrial and policy directions for future research on trade of leather products by means of an application of the gravity model. There are some methodological innovations of the model. The concluding remarks have generated some insights and lessons that would be useful in the development of leather trade across the world.