Export-led growth in Bangladesh: a time series analysis

Abstract

This article examines time series evidence to investigate the link between exports and economic growth in Bangladesh. Using quarterly data for a period from 1976 to 2003 the article finds that industrial production and exports are cointegrated. The results of an error correction model (ECM) suggest that there is a long-run unidirectional causality from exports to growth in Bangladesh.

Notes

The total value of exports increased from US$468.8 million (2000 constant USD) in 1976 to 6951 million in 2002 according to International Monetary Fund (IMF).

See Ahmed and Sattar (2004) for a detailed account.

According to Dodaro (1991), Bangladesh recorded the second highest value of the price distortion index – only after Ghana – from within a group of 41 countries.

See Love (1995) for a discussion.

Since GDP data are not available at quarterly frequency industrial production index were used.

Since one is using industrial production index it seems more appropriate to use ‘exports of goods only’ but ‘exports of services’ may indirectly affect industrial production. Both series, however, display similar patterns over the sample period.

There is no general rule as to how one chooses the maximum lag length to start with. Enders (1995: 227) suggests that one should ‘start with a relatively long lag length’. Some researchers use the following rule of thumb: start with a maximum lag length equal to the cube root of the number of observation which is 4.8 (≅

) in this case. One also uses other information criteria such as Schwarz criterion (SC) or Hannan–Quinn criterion (HQC). Most times these criteria choose the same lag length. Even for cases with different lag lengths selected by different criteria the ADF test results are qualitatively similar.

Because of the low power of ADF tests, some studies (e.g. Freeman, 2001) suggest that one should experiment with the lag structure to determine if cointegrating relationship can be found between variables ‘close’ in time. The stationarity tests of the residuals obtained from experiments with various lags suggest that there is a cointegrating relationship between y and 8th lag of x.

However, the result is stronger when we use ‘exports of goods only’.