Garment Sector Development Nexus Economic Growth in Bangladesh: A Dynamic Cointegration and Causality Analysis

Abstract

In Bangladesh the garment sector is one of the major industrial sector which occupied its foremost presence in the economy of the country in terms of foreign exchange earnings, contribution to GDP, and employment generation and as well. The garment sector plays significant roles for socio-economic development and poverty alleviation in Bangladesh. The export-oriented readymade garments (RMG) sector in Bangladesh, started its journey in late 1970s as a small non-traditional sector of export. The industry began its journey from 1978 and formally started its journey in the 1980s, after that RMG sector of Bangladesh started growing, capture the market globally and providing valuable performance. In 1979 the garment sector exported only 0.672 million $ with operating 12 garment factories by 0.39 million workers but in 2020 within a span of two decays export values have gone up to 31456.73 million USD with its 4764 export oriented garment industries including 4.23 million workers. Thus an important question is usually raised by the researchers, is there a long-run cointegration relationship between garment sector development and economic growth in Bangladesh? To give the answer of this question this paper has tried to find out whether the long-run cointegration relationship exists between garment sector development and economic growth in Bangladesh economy. The study is used the times series data from 1976-2020 for garment sector development and economic growth. The existence of long-run cointegration relationship is found between garment sector development and economic growth in Bangladesh economy. From the estimated results of the vector error correction (VEC) model it is found that there exists short run bidirectional causality between garment sector development and economic growth. The significance and negative sign of test statistic of ECM(-1) denotes the existence of long run causality between garment sector development and economic growth. Therefore, it can be presumed that there is a long-run equilibrium connection between garment sector development and economic expansion in Bangladesh economy. From the estimated values of response function it can be said that with respect to one standard deviation the variable garment sector development responds positively for the next fifteen years in the variable economic growth in Bangladesh.