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International Competitiveness of Major Export Sectors and the Pursuit of Export Diversification in Bangladesh

Dr. Rakhal Sarker
Associate Professor Department of Food, Agricultural and Resource Economics University of Guelph Gue
Associate Professor Department of Food, Agricultural and Resource Economics University of Guelph Guelph, Ontario Canada N1G 2W1

Abstract/ Executive Summary:

In an increasingly globalized world, expansions of trade and export diversification are considered to be very important for achieving sustainable economic growth. While export diversification issues have been central to many policy dialogues in Bangladesh in recent years little effort has been made to investigate international competitiveness of major export sectors using longitudinal data. As a result, empirical dimensions of alternative export diversification pursuits in Bangladesh remained largely unexplored. This article contributed to export diversification literature by measuring and comparing international export competitiveness of five major export sectors, readymade garments, leather & products, fish and sea food, tea and jute employing annual data from 1980 to 2013. The expansion of readymade garments export from Bangladesh has been phenomenal. Exports of fish and seafood also increased slowly. The volume and value of the exports of the other three sectors declined during the study period. The results demonstrated that three of the five sectors enjoyed international competitiveness, the export competitiveness of only two sectors, readymade garments and fish and seafood increased while the export competitiveness of the other three sectors declined over time during the study period. The results from export competitiveness analysis underscore the challenges associated with export diversification pursuits and highlight the needs for sector specific policy remedies in Bangladesh.

Keywords: Longitudinal data, International, Competitive performance, Major Export Sectors, Pursuit of export, Diversification

Location:

Start Date: 00-00-1980

End Date: 00-00-2013

Program Area: Socio-economic and Policy

Non-commodity: Analysis and interpretations

Objectives:

To investigate international competitiveness of major export sectors using longitudinal data.

Methodology:

To measure competitive performance of the selected export sectors in Bangladesh, this study employs competitiveness measures which focus on trade success. Based on the premise that higher demand for the currency of a country strengthens the real value of its currency, some analysts argued that the real exchange rate can be used to measure international competitiveness (Brinkman, 1987; Ball et al., 2010). The RER is defined as the ratio of the price index of tradable commodities to the price of non-tradable commodities. Ball et al. (2010) argue that it is better to use the purchasing power parity (PPP) to measure and compare relative prices of different countries than the RER. While a strong RER might be a sign of increased competitiveness of a country, it also lowers international competitiveness by making its products more expensive toforeign buyers. Therefore, it is not a good indicator of export competitiveness of the selected sectors in Bangladesh. Secondly, since the introduction of the flexible exchange rate regime, currencies are traded as commodities in foreign exchange markets around the world. As a result, exchange rates reflect changes in economic fundamentals as well as speculative motives of currency traders. To reduce the effect of speculative attacks on their currencies, many countries routinely intervene in their foreign exchange markets. As countries manipulate RER and the PPP, the use of these indicators to measure and compare export competitiveness is problematic (Sharples, 1990; Harrison and Kennedy, 1997). Export market shares (EMS) has also been used to measure export competitiveness of a sector or a country. The competitiveness neutral value of this index is 0 and it is bounded by -1 and 1. Since the EMS does not take into account a country’s size, it is not appropriate to use thisindicator to measure and compare export competitiveness of the selected sectors (Fischer andSchornberg, 2007).The most widely used measure of export competitiveness of a sector or a country hasbeen revealed comparative advantage (RCA). This measure was first formulated by Balassa(1965) and is sometimes called as the Balassa index.

Source of Information: Paper prepared for presentation at the 15th National Conference and Seminar of the Bangladesh Agricultural Economists Association at BARC, Farmgate, Dhaka-1215.

Article Link (Online Journal):

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

As the level of protection drops and commodity markets become increasingly globalized, there is a growing optimism that many developing countries can achieve sustainable economic growth through trade expansion and export diversification. While export diversification can confer many potential benefits to a country, harnessing the full benefits of export diversification requires that the major export sectors are competitive on the world market. Spectacular trade performance of the readymade garments sector in Bangladesh since the mid-1980s brought much needed growth in labour employment, foreign exchange earnings and in the overall economy. However, it also made many economists and policy makers weary about too much dependence of Bangladesh on the export of just one sector. Therefore, export diversification issues have fared prominently in many policy discussions in recent years in Bangladesh. Despite significant policy attention and sporadic media attentions to the issue of export diversification, however, no study has investigated international competitiveness of major export sectors in Bangladesh. An attempt is made in this article to bridge this gap by measuring and comparing the revealed comparative advantage of five major export sectors in Bangladesh using longitudinal data. The results demonstrated that the five major export sectors enjoyed comparative advantage for most of the years considered in this study. However, the international competitiveness of only one sector, the readymade garments sector, has been growing over time. The competitiveness of the other selected sectors is either stagnant or declining over time. While the Uruguay Round of Agreements on Agriculture is believed to have created new agri-food trade opportunities, it appears that the traditional export sectors of Bangladesh did not benefit from the URAA. The results also demonstrate that the removal of the MFN quota certainly benefited the clothing exports from Bangladesh. An important implication of these results is that, achieving any reasonable export diversification in the near future would be a challenging task in Bangladesh. Future research should focus on the factors contributing to international competitiveness of the selected sectors in Bangladesh. the other selected sectors is either stagnant or declining over time. While the Uruguay Round of Agreements on Agriculture is believed to have created new agri-food trade opportunities, it appears that the traditional export sectors of Bangladesh did not benefit from the URAA. The results also demonstrated that the removal of the MFN quota certainly benefited the clothing exports from Bangladesh. An important implication of these results is that, achieving any reasonable export diversification in the near future would be a challenging task in Bangladesh. Future research should focus on the factors contributing to international competitiveness of the selected sectors in Bangladesh.

Knowledge Management: Report/Proceedings