An Empirical Estimation of Export and Import Demand Functions Using Bilateral Trade Data: The Case of Bangladesh

Abstract

One of the most essential issues in economic debate is the speed of economic development of a nation. A nation could accelerate the rate of economic growth by promoting exports of goods and services. The economy of Bangladesh is the 32nd largest in the world by purchasing power parity and is classified among next eleven emerging market economies in the world. According to the IMF (International Monetary Fund) Bangladesh's economy is the second fastest growing major economy of 2016, with a rate of 7.1%. Throughout the last decades, Bangladesh averaged a GDP growth of 6.5%, leading the country to become an export-oriented industrialization. The country's exports are projected to cross US$ 50 billion by 2021 that will help to reduce the gap between import payments and export earnings. In this study researcher has estimated an elasticity of import and export demand function for Bangladesh's trade with traditional trade partners’ countries to see the dynamics of Bangladesh trade from 1981 to 2013. OLS results suggest that national income is the principal determinant of exports and imports. Income (GDP), exchange rate and inflation rate are important determinants for foreign trade of Bangladesh. Continuing its trade with traditional partners and making efforts for greater market access to the USA; Bangladesh should make efforts to increase its trade with Asian countries, notably China, India, Singapore, and Malaysia; because of their fast growing economies and have a huge market.