Potential trade vulnerability of Bangladesh: an exploratory analysis

Abstract

Bangladesh's integration in the global economy has hitherto proven to be an important force behind its economic growth. However, exclusively trade dependent growth is also trade vulnerable growth. This paper explores the factors that may potentially affect the trade vulnerability of Bangladesh. Results of the bivariate non-parametric local linear kernel regression estimation reveal that the minimum wage of readymade garment workers, manufacturing cost, utilities cost, crude oil prices, and climate change are positively related to trade volatility, while improved political stability is negatively related to trade volatility. Multivariate kernel regressions with composite indicators show that macroeconomic factors, such as exchange rate, foreign exchange reserves and budget balance, have a statistically significant impact on the trade volatility of Bangladesh. In view of these preliminary results, a number of policy recommendations are suggested to deal with the short run and long run trade vulnerability of Bangladesh.