The gains from exchange rate unification in Bangladesh

Abstract

We show that Bangladesh’s former exchange controls acted like a tax on traditional exports, such as jute; and use a computable general equilibrium model to simulate the abolition of these controls. Under our preferred assumption that world demand for traditional exports is highly price elastic, the abolition of controls raised welfare, but only by a small amount because traditional exports were small relative to GDP. If, alternatively, the price elasticity of world demand for jute is as low as some econometric estimates suggest, the abolition of controls slightly reduced welfare, by removing an approximation to an optimal export tax.