Impact Of Distance On Bangladeshi Export Economics Essay

The purpose of this paper is to happen out the impact of overall distance on the trade volume of Bangladesh with its trading spouses. It is besides an effort to depict the impact of regional understandings, gross domestic product and population of the spouse states on Bangladeshi export. This paper will

give an overview of current trade form of Bangladesh.

Introduction

The state one time which was labeled as “ bottomless basket ” by the Westerns is now turning at incredible higher rate. The economic system is being matured twenty-four hours by twenty-four hours. It ‘s good known to all that Bangladesh is an over populated little state and non endowed by any natural resource which can alter the indexs of economic system significantly. At the same clip economically and politically it is non in a place that foreign investors are extremely interested. So it has ever been depended on traditional manner of economic development. Bangladesh tried to stress on spread outing export around the universe and evidently the economic system ‘s trade spread has ever been supported by remittals sent by the Bangladeshi workers around the Earth. The export growing of the state is comparatively high than many other states of the part, though export is concentrated on specific merchandise. Now export is concentrated on dress merchandises some old ages ago which was depended on jute and jute merchandises.

From the theoretical position point, we know that Bangladesh is a state with cheaper labour so Bangladesh has the Comparative Advantage in production of labour oriented goods such as Garments merchandise and Bangladesh is making it harmonizing to the theory. Bangladesh is now universe ‘s 2nd big exporter of garment merchandises. In Flam and Flanders in the “ Introduction to Heckscher-Ohlin ” ( 1991 ) showed that, harmonizing to Heckscher-Ohlin factor proportions theory of Comparative Advantage, international commercialism compensates for the un even geographic distribution of resources.

Harmonizing to the planetary small town theory, states are acquiring nearer twenty-four hours by twenty-four hours. In the analysis of act uponing factors of Bangladeshi export around the Earth, Geographical location comes into forepart. From the really early of economic thought, it was the concern of economic experts to happen out the impact of geographics on trade volume. The purpose of the paper is to happen out whether the distance has traditional impact on Bangladeshi export or it shows some different consequence. It is common to all that with addition in distance, Cost rises proportionately. Bangladesh imports from Asiatic states

Literature Review

Huge figure of work has already been done in this subject of how geographical distance affects the trade volume of one state and most of them are evidently in the name of Gravity theoretical account. The gravitation theoretical account is manfully originated from Newtonian natural philosophies now widely applied in economic sciences. The micro-foundations attack besides alleges that the important premise of perfect merchandise replaceability of the ‘conventional ‘ gravitation theoretical account is unrealistic as grounds in recent times has shown that trade flows are differentiated by topographic point of beginning. Exclusion of monetary value variables leads to misspecification of the gravitation theoretical account. Anderson ( 1979 ) , Bergstrand ( 1985, 1989 ) , Thursby and Thursby ( 1987 ) , Helpman & A ; Krugman ( 1985 ) and so on portion this position. Eaton and Kortum ( 1997 ) besides derive the gravitation equation from a Ricardian model,

Deardoff ( 1997 ) derives it from a H-O position. Deardroff proves that, if trade is impeded and each good is produced by merely one state, the H-O model will ensue in the same bilateral trade form as the theoretical account with differentiated merchandises. If there are dealing costs of trade, distance should besides be included in the gravitation equation. It is shown by Evenett and Keller ( 1998 ) that the standard gravitation equation can be obtained from the H-O theoretical account with both perfect and imperfect merchandise specialisation. Some premises different from increasing returns to scale, of class, are required for the empirical success of the theoretical account.

The recent Trade Pattern of Bangladesh

In 2012 entire export rises to $ 24.28 billion from Bangladesh and imported different goods and services of $ 30 billion. Among the export points of Raw jute, Tea and Jute goods ( excepting rugs ) are considered as traditional points. Other than traditional points all merchandises are considered as Non-Traditional points like Woven garments, Knitwear, Frozen nutrient, Chemical merchandises, Leather, Home fabric, Pharmaceuticals, Handicrafts, Footwear, Cement, Textile cloths etc.

If we look at the export combination of exported goods now woven garments and knitwear provide about 80 % per centum of entire export combination. From Bangladesh export statistics provided by export publicity bureau we can see that In the twelvemonth 1972-1973 of entire export from Bangladesh,51.4 % was jute and jute merchandises where in 1981-82 it became 46.5 % .Interestingly in that twelvemonth 1981-82 export of garment merchandise was merely 1.1 % , in 1990-91 export of garment and garment merchandise came to 50 % of entire export. In the twelvemonth 2005-06 entire export of garment and knitwear was 77 % of entire export, jute and jute good came down to 2.63 % of entire export!

If we look to the Export spouses of Bangladesh, Alternatively of any Asiatic state it exports most to United States of America. In 2012, it exported approximately 20 % of his entire export in this state. The tabular array shows that major trading spouses are all from either from Europe or America. Question is did Bangladesh fail to fulfill the demand of Asiatic states? Specially why the trading form is so concentrated in few states?

Table1.1- Major export spouses in 2012

Export spouses of BD

% of Entire Export

USA

19.7 %

Germany

16.1 %

United kingdom

9.5 %

France

7.2 %

Netherlands

4.2 %

Bangladesh as a Member of Different Trade Agreements

Harmonizing to information provided by the ministry of commercialism Bangladesh is member of several trade understandings. Though it is a affair of inquiry how much Bangladesh has been benefited from the understandings, It will be relevant if some of them are discussed.

SAPTA ( SAARC Preferential Trading Arrangement ) –

To advance and prolong common trade and the economic cooperation among the SAARC states through interchanging grants on trade steps SAARC Preferential Trading Arrangement ( SAPTA ) was signed in 11th April 1993 and operationalized in December 1995 to give limited discriminatory market entree to exports of member states. Since 1995 there were four unit of ammunitions of dialogue for duty grants, the last of which was completed in December 2002. Negotiations were confined entirely to the issue of duty cuts. The issue of para-tariff and non-tariff steps was left out wholly. The member states of the Agreement are Bangladesh, Bhutan, Maldives, India, Pakistan, Nepal and Sri Lanka.

SAFTA -The Agreement on South Asian Free Trade Area- The Agreement SAFTA was signed on 6 January 2004 in Pakistan. SAFTA has entered into force from 1st January 2006. Tariff decrease under SAFTA has started from 1 July 2006. The member states of the Agreement are Afghanistan, Bangladesh, Bhutan, Maldives, India, Pakistan, Nepal and Sri Lanka. Pakistan, India and Sri Lanka will convey down their duty to 0-5 % for LDCs in 3 old ages. Such duty decrease will be done by LDCs in 10 old ages. Duty decrease ( 0-5 % ) will be accorded to those points which do non look in the sensitive lists. The general standard of SAFTA Rules of Origin is CTH ( Change of Tariff Heading ) + 40 % value add-on for Non-LDCs and CTH + 30 % value add-on for LDCs. There is besides a merchandise specific regulation for 191 points where general standard does non use. Under regional pile regulations of SAFTA, there is the proviso of value add-on standard merely. In this instance, the regional value add-on is 50 % , of which 20 % has to be in the concluding exportation state.

APTA -Asia Pacific Trade Agreement

The Bangkok Agreement was established in 1975. Member states are Bangladesh, India, Sri Lanka, China, the Republic of Korea and Lao People ‘s Democratic Republic. The Bangkok Agreement has late been revised and renamed as the Asia Pacific Trade Agreement ( APTA ) . The APTA has come into force from 1 July 2006. The APTA contains amalgamate list of duty grants granted by member states to each other. Under this understanding, China has provided 100 % duty grants to 83 points of Bangladesh at 8-digit degree and Republic of Korea has provided 100 % duty grants to 139 points at 10-digit degree

D-8

D-8, besides known as Developing-8, is an agreement for development cooperation among the member states: Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan and Turkey. D-8 was officially established by the Summit of Heads of State/Government in Istanbul on June 15, 1997 ( Istanbul Declaration ) . The aims of D-8 are to better places of the developing states ‘ in the universe economic system, diversify and make new chances in trade

European Commission ( EC )

Commercial Cooperation Agreement between EC and Bangladesh was signed on May, 2000 and Bangladesh -EC Joint Commission ( JEC ) was formed under article 12 of the understanding. Bangladesh has first-class bilateral trade relationship with EU member states. Our entire export to EU states is increasing significantly over the old ages. EC supported Bangladesh in the countries of Trade Capacity Development. The undertakings funded by EC are: ( a ) Bangladesh Trade Support Programme ( 7.8 million Euros ) , ( B ) Small Undertaking Facilities ( SMF ) ( 3 million Euros ) . ( degree Celsius ) Quality Support Programme ( 10 million Euros ) .

Trade Preferential System Among the OIC Members ( TPS-OIC )

TPS-OIC launched First Round on Trade Negotiations under TPS-OIC in April 2003. First Round was concluded in November 2005 with finalisation of a protocol on Preferential Tariff Schemes for TPS-OIC ( PRETAS ) . Bangladesh signed TPS-OIC ( PRETAS ) on 26th November 2006.The Ratification Process of the TPS-OIC ( PRETAS ) is in Progress.

Aim of the survey

The chief aim of the survey is to happen out the impact of planetary geographics on Bangladeshi Export, specifically to see what happens to export volume of Bangladesh with leaden distances and clip differences of states. It besides aims to see the impact of different states GDP and population on Bangladeshi export volume-Additionally, this survey will seek to happen out the impact of inter and intra regional trade understandings like SAFTA and ASEAN ON Bangladeshi exports.

Data and Methodology

First of all this paper is non proving Gravity theoretical account, but it is utilizing the thought of Gravity theoretical account. The gravitation theoretical account is being widely used for many old ages. The basic thought of gravitation theoretical account is that trade lessenings with the distance between two states is intuitive and holds up good through empirical observation. The application of the gravitation theoretical account is peculiarly straightforward since the nature of the daze is straight to distance. Alternatively of analysing with peculiar trade spouse, this paper aims to prove overall consequence of distance on export volume of Bangladesh. It besides aims to prove whether it gets any advantage of regional benefit in instance of export

For simpleness 46 states has been chosen around the universe which are trade spouses of Bangladesh. Sample screens from all the continents. In the sample all states of SAARC are included ; it besides covers the ASEAN states like Myanmar, Philippines, Thailand, and Vietnam etc. China and Japan are ever of import trade spouses. Some Arabian states are besides in the informations. Among the European state dataset screens states like Germany, France, U.K, Switzerland etc. north American states like USA, Canada, Mexico are taken into history. The states from Oceania are Australia and New Zealand. The Countries from Africa are Kenya, Ghana and South Africa. It includes the South American states Brazil, Argentina, Ecuador which are really far from Bangladesh.

The paper is utilizing secondary informations from Centre d’Etudes Prospectives et d’Informations Internationales or CEPII, France. The dataset contains Data for 224 Ten 224 states from 1948 to 2006.It is a gravitation dataset made by Cepii but it does non incorporate the export import informations. The export informations is taken from export publicity agency. Data for merely 2005 is kept and so combined with the export informations. The exports were given in million taka, which has been converted to dollars by spliting the exchange rate of 2005 which was 67.63. The distance was given in kilometer, for simpleness of reading kilometer has been divided by 1000 and now it became in 1000 kilometres.

The simple signifier of the theoretical account is

Log ( Xi ) = I± + log ( gross domestic product ) + log ( dad ) + ( distw1 ) + ( D_saarc ) + ( D_asean ) + ( contig ) + ( comcol ) + ( tdiff ) + distwsq1 )

Here,

Log ( Xi ) -log of export from Bangladesh to the selected trade spouses in 2005 ( USD )

log ( gross domestic product ) – gross domestic merchandise of the selected trade spouses of Bangladesh in 2005 ( USD )

log ( dad ) -log of entire population of the trade spouses of Bangladesh in 2005

distw1-weighted distance from Bangladesh ( in1000km ) -weights are calculated harmonizing to CEPII

D_saarc-dummy- 1if the state is of SAARC

D_asean-dummy, 1 if the state is of ASEAN

contig-if the state has common Border with Bangladesh

comcol-if the state has common colonial beginning with Bangladesh

tdiff- clip difference from Bangladesh

distwsq1-sqared of distance

Now we can discourse about our outlooks about the coefficients, are expected to be positive as addition in population and entire income will lift the demand for Bangladeshi merchandise in foreign state. Leaden distance is expected to be negative, coefficient is expected to be positive, is expected to be positive.

Table-result

Variable

Coefficient

log ( gross domestic product ) –

. 9172902 ***

log ( dad ) –

.2498308

distw1

.2538578

D_saarc-

-.1660849

D_asean-

.006427

Contig

-.6177793

Comcol

1.141382*

Tdiff

. 3581967

distwsq1

-.0231516***

***1 % degree of significance**5 % degree of significance *10 % degree of significance

From the consequence we can see that, we one per centum point addition in spouses GDP raises Bangladeshi export by.92 per centum point which is important at 1 % degree.

In instance of population expected mark is positive but which is non important.

The coefficient of distance and squared distance Tells us a Fringy impact of distance is diminishing in an increasing rate.

Trade volume decreases if the state is among SAARC and interestingly additions if the state is ASEAN, though both are undistinguished.

If the state with common boundary line demoing negative mark

Most interesting determination is the trade volume is positively important with the states which were besides one time under British settlement

Shortcoming of the survey

It is unusual to deduce any peculiar premise from this analysis because we are working with merely one twelvemonth and 46 trade spouses. the panel analysis is would be more acceptable but the job with panel is it removes the fixed consequence of some variables like distance and clip.

Decision

From the above arrested development and descriptive analysis is clear that Bangladesh is making comparatively good with the spouses which are geographically far from Bangladesh. Now it is high clip for Bangladesh to concentrate on bilateral trade with ain regional states like India, Pakistan, and China. Bangladeshi export basket is extremely concentrated on peculiar merchandise like garments which is non good for the economic system. Government has to take enterprise to get the better of the drawbacks of trade sector and take the chance to hike up the economic system. Particularly in instance of India, trade spread is really dissatisfactory. Bangladesh is exporting a immense sum to far off USA but it exports a really small to India, by which is it surrounded by. So it can be said that we have failed to take the advantage of geographical location, export growing is higher merely because of peculiar garment sector and we know that purchasers are geographically far off from Bangladesh.