Factors Affecting Volatility of Bangladesh Trade Deficit: An Econometric Analysis

Authors

  • Mohammad A. Ashraf
  • Hasanur R. Joarder

Abstract

Bangladesh, one of the rising member countries of South Asia, passed a severe economic hardship during its post-independence period of 1970s till 1980s. Historically, Bangladesh inherited trade deficit from Pakistan legacy. Economic scenario, however, has had a distinct turnover in 1990s when share of export earnings from traditional items dragged down dramatically and that of non-traditional items grew apace. In parallel to export earnings, the import spending has also increased observing larger pace that worsens trade deficit volume and volatility as well. This study, thus, primarily endeavors to examine the trends in the trade deficit volume and volatility and also to identify the factors responsible for influencing that pattern. In so doing, the study employs two periods and examines, based on secondary data, the mean and standard deviations of trade deficit in two periods. The findings reveal that both mean and standard deviation have been increased by many-fold during the last 26 fiscal years starting from 1983/84. Consequently, these outcomes lead the economy to uncertainties that aggravate management of the production sector and overall macroeconomic policy-planning as well. The regression model shows that there have been three significant variables that influenced the foreign trade volume and volatility. These are the GDP, population number and the excise and duties for import. The study concludes with a recommendation of two policy initiatives in order to minimize the economic uncertainties. In so doing, government budget ought to be balanced and the import sector should be restricted to squeeze the import spending.

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