Does an export‐led growth proposition exist for Bangladesh's ready‐made garments sector? A nonlinear ARDL approach

Abstract

AbstractBangladesh's ready‐made garments (RMG) sector contributes more than 80% of the country's total export earnings. This study aimed to explore the existence of an RMG export‐led growth (ELG) proposition for Bangladesh. It employed a neoclassical growth function augmented by RMG export incomes and foreign direct investment (FDI), used yearly data from 1986 to 2019, and applied the nonlinear autoregressive distributed lag (NARDL) model and the Toda‐Yamamoto (T‐Y) causality check. The NARDL test revealed that RMG export incomes had an asymmetric impact on economic growth (EG). The former positively influenced the latter both in the long and short term. The higher the value of the RMG export earnings, the better the EG. FDI inflow also asymmetrically and positively influenced EG. The T‐Y causality test revealed unidirectional causality from RMG export earnings to EG and authenticated that RMG exports augment Bangladesh's ELG proposition. These results suggest that policymakers should diversify Bangladesh's RMG products and markets to boost RMG export earnings and encourage FDI inflow to bolster EG.