Exports and economic growth in Bangladesh

Abstract

This study investigates the effect of exports on economic growth in Bangladesh, based on a two‐sector growth model. Using annual data for the period 1961–92, the article estimates an Autoregressive Conditional Heteroscedastic model of economic growth, which is found to capture the volatility of the Bangladesh economy. The results suggest that an increase in the share of investment in GDP significantly increases the growth rate of GDP in normal years, but negligibly increases GDP growth in abnormal years. Abnormalities in the economy arise from war, political turmoil and natural disasters. The key finding is that export growth has significantly increased economic growth through its positive impact on total factor productivity in the economy. The contribution of exports to economic growth was more pronounced during 1982–90 when the government pursued a policy of trade liberalisation and structural reform, and political turmoil was not persistent. This finding is not sensitive to the choice of the model or the estimation technique.