Trade liberalization and endogenous growth of manufacturing industries in Bangladesh: an empirical investigation

Abstract

Using the framework of an endogenous growth model, this paper empirically analyses the relation between trade policies and industrial growth in Bangladesh during the period 1974–1996. The cointegration and error correction modelling approaches have been applied. The empirical results suggest that there exists a unique cointegral relation between the index of industrial production and its major determinants of investment-GDP ratio, average share of exports in GDP and secondary school enrolment ratio. The short-term dynamic behaviour of Bangladesh's industrial production has been investigated by estimating an error correction model in which the error correction term has been found to be correctly signed and statistically significant. The findings of the study show that investment share in GDP, export share in GDP (lagged four quarters), secondary school enrolment ratio, and average collection of customs duty (lagged six quarters) have all emerged as significant determinants of industrial production in Bangladesh.