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Problems of Bilateral Trade Deficit between Bangladesh and India: A 2SLS Regression Analysis

Muntasir Murshed

,

Syed Margub Elahi

Muntasir Murshed 1

Syed Margub Elahi 2

  1. North South University, Dhaka, Bangladesh. 1

  2. Jahangirnagar University, Dhaka, Bangladesh. 2

Pages: 215-231

DOI: 10.18488/journal.62.2019.64.215.231

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Article History:

Received: 26 March, 2019
Revised: 01 May, 2019
Accepted: 13 June, 2019
Published: 20 August, 2019


Abstract:

This study investigates the factors that determined the bilateral trade deficit of Bangladesh against India. The results of the Johansen cointegration test indicated that there were long-term associations between the trade deficit of Bangladesh real income levels, and the bilateral RER of both countries. Results from the two-stage least squares regression analyses indicated that a 1% increase in the real income levels of Bangladesh and India aggravated the bilateral trade deficit of Bangladesh by 4.61% and 3.98% respectively while a 1% real appreciation of the bilateral real exchange rate was found to reduce the deficit by almost 6%, ceteris paribus. Results also showed that Bangladesh faced persistent deficits in its bilateral trade balance against India due to its exports being comparatively less elastic than its imports engagements with India. The paper also sheds light on the anti-dumping policy pursued by India that has contributed to the unbalanced trade between the two economies.
Contribution/ Originality
This study contributes to existing literature by analyzing the elasticities of Bangladesh’s imports from and exports to India. It is relevant from the perspective of policy implications to understand the degrees of responsiveness of Bangladesh’s import demand and export supply leading to the nation’s trade deficit with India.

Keywords:

Bilateral trade deficit, Export, Import, Elasticity, Bilateral real exchange rate, Anti-dumping duty.

Reference:


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Funding:

This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.

Acknowledgement:

Both authors contributed equally to the conception and design of the study.

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