Estimation of the Export Demand Function using Bilateral Trade Data

Abstract

Trade liberalization policy represents an important policy instrument for developing countries. However, existing empirical literature on the impact of trade liberalization is ambiguous and this uncertainty also extends to Bangladesh economy. Various studies have sought to estimate econometrically the export demand function for Bangladesh as a means of clarifying the effects of trade liberalization in that country. Unfortunately, no recent studies have examined the liberalization effect on disaggregated exports in Bangladesh. In order to remedy this neglect, this article examines the likely impacts of trade liberalization policies on the disaggregated export function in Bangladesh for the period 1973–2004. The main purpose is to examine whether bilateral export elasticities are significantly different between major trading partners. If this is indeed the case, then different policies should be implemented rather than a single trade policy to enhance exports. A secondary objective is to establish whether trade liberalization has had any impact on the export sector in Bangladesh.

Keywords

JEL: C22 JEL: F13 JEL: F32 JEL: F43 Bangladesh Export Demand Functions Trade Liberalization

Get full access to this article

View all access options for this article.

References

Agosin, M. (1991), ‘Trade Policy Reform and Economic Performance: A Review of the Issues and Some Preliminary Evidence’, Discussion Paper No: 41, UNCTAD .

Ahmed, N. (2000), ‘ Export Responses to Trade Liberalization in Bangladesh: A Cointegration Analysis ’, Applied Economics, August, 32 (8): 1077–84 .

Balassa, B. (1971), ‘ Trade Policies in Developing Countries ’, American Economic Review, 61 (2): 178–87 .

Bangladesh Economic Review (2003), Ministry of Finance, Dhaka, Bangladesh .

Bangladesh Economic Review (2004), Ministry of Finance, Dhaka, Bangladesh .

Bhagwati, J.N. (1988), ‘ Export Promoting Trade Strategies, Issues and Evidence ’, The World Bank Research Observer, 3 (1): 27–58 .

Bleaney, M. (1999), ‘ Trade Reform, Macroeconomic Performance and Export Growth in Ten Latin American Countries, 1979–95 ’, Journal of International Trade and Economic Development, 8 (1): 89–105 .

Choudhury, R.F. (2001), ‘ Export Demand Function of Bangladesh: An Econometrics Exercise ’, The Bangladesh Development Studies, September, 27 (3): 68–90 .

Clarke, R. and C. Kirkpatrick (1992), ‘Trade Policy Reform and Economics Performance in Developing Countries: Assessing the Empirical Evidence’, in R. Adhikari , C. Kirkpatrick and J. Weiss (eds), Industrial and Trade Policy Reform in Developing Countries. Manchester: Manchester University Press .

10.

Cordon, W.M. (1966), ‘ The Structure of a Tariff System and Effective Protection Rate ’, Journal of Political Economy, 74 (3): 221–37 .

11.

Dornbusch, R. (1992), ‘ The Case for Trade Liberalization in Developing Countries ’, Journal of Economic Perspectives, 6 (12): 69–85 .

12.

Dutta, D. and N. Ahmed (2000), ‘ An Aggregate Import Demand Function for India: A Cointegration Approach ’, Applied Economics, 31 (4): 465–72 .

13.

Engle, R.F. and C.W.J. Granger (1987), ‘ Cointegration and Error Correction: Representation, Estimation and Testing ’, Econometrica, 55(March): 251–76 .

14.

Export Promotion Bureau (2005), Bangladesh Export Statistics. Bangladesh .

15.

Hossain, M.A. and M. Alauddin (2005), ‘ Trade Liberalization in Bangladesh: The Process and Its Impact on Macro Variables Particularly Export Expansion ’, The Journal of Developing Areas, 39 (1): 127–150 .

16.

Houthakker, H.S. and Magee, S.P. (1969), ‘ Income and Price Elasticities in World Trade ’, Review of Economics and Statistics, 51 (2): 11–125 .

17.

Hussain, M.N. (2004), ‘ Estimation of Import Demand Functions for Bangladesh Economy ’, Economic Affairs, 50 (4): 225–33 .

18.

IMF (International Monetary Fund) (2004), International Financial Statistics Yearbook.

19.

Joshi, V. and L.M.D. Little (1996), India's Economic Reforms 1991–2001. Oxford: Oxford University Press .

20.

Little, I.M.D. , T. Scitovsky and M. Scott (1970), Industry and Trade in Some Developing Countries: A Comparative Study. London: Oxford University Press .

21.

Lopez, P.P. (2005), ‘ The Impact of Trade Liberalisation on Exports, Imports, the Balance of Payments and Growth: The Case of Mexico ’, Journal of Post Keynesian Economics, 27 (4): 595–619 .

22.

Marquez, J. and C. Mcneilly (1988), ‘ Income and Price Elasticities for Exports of Developing Countries ’, The Review of Economics and Statistics, 70 (2): 306–14 .

23.

Nguyen, D.T. and A.R. Bhuyan (1977), ‘ Elasticities of Export and Import Demand in Some South Asian Countries ’, The Bangladesh Development Studies, 2: 133–52 .

24.

Paulino, A.S. and A.P. Thirlwall (2004), ‘ The Impact of Trade Liberalization on Exports, Imports, and the Balance of Payments of Developing Countries ’, The Economic Journal, 114 (1): 50–72 .

25.

Roy, D.K. (1991), ‘ Export Performance of Bangladesh: A Constant Market Share Analysis ’, The Bangladesh Development Studies, December, 19 (4): 63–81 .

26.

Roy, D.K. (1993), ‘ Impact of Incentives on Export Performance of Bangladesh: A Preliminary Assessment ’, The Bangladesh Development Studies, June, 21 (2): 25–44 .

27.

Senhadji, A.S. and C. Montenegro (1999), ‘ Time Series Analysis of Export Demand Equations: A Cross-Country Analysis ’, IMF Staff Papers, June, 46 (3): 236–68 .

28.

Shilpi, F.J. (1990), Estimating Income and Price Elasticities of Imports and Exports of Bangladesh. Research Report No.2, Bangladesh Institute of Development Studies, Dhaka .

29.

Thomas, V. , J. Nash and S. Edwards (1991), Best Practices in Trade Policy Reform. Oxford: Oxford University Press .

30.

Weiss, J. (1992), ‘ Export Response to Trade Reforms: Recent Mexican Experience ’, Policy Review, 10 (1): 45–60 .