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Bangladesh-india Trade: Some Preliminary Results

Anisul M. Islam
Professor of Economics
College of Business, University of Houston-Downtown, One Main Street Houston, Texas, 77002, USA

Abstract/ Executive Summary:

Bangladesh is a small emerging developing economy, which is geographically surrounded by India on three sides with the Bay of Bengal on the South and a very tiny border area with Myanmar in the South East. Given close physical distance, and its friendly political and diplomatic relationship, it is natural that Bangladesh will have a large volume of trade with its largest neighboring country. Given this background, the paper presents some preliminary results of trade between these two countries. More specifically, it examined the relative position of the two countries in global trade, explores the overall trend in exports to and imports from India, and the trend in trade balance using aggregate-level data. The paper finds that India has a much stronger position in the global trade vis-à-vis Bangladesh and that India strongly dominates Bangladesh in bilateral trade, resulting in a very large and persistent trade deficit with India. The study utilized data that were collected from country-specific sources as well as international organization sources such as the IMF and the WTO. The paper is of interest to academics, researchers, policymakers in Bangladesh, India and various international organizations, think tanks, and trade practitioners.

Keywords: Exports, Imports, Trade balance, Bangladesh, India

Location: In Bangladesh

Start Date:

End Date:

Program Area: Comparative study

Commodity: Market analysis, Trade, Sustainable livelihood

Objectives:

To examine the relative position of the two countries in global trade explores the overall trend in exports to and imports from India, and the trend in trade balance using aggregate-level data.

Methodology:

Both aggregate time-series data and product-specific cross-section data were utilized to construct and interpret a number of trade-related measurements and indicators. The trade-related measurements used in this paper are listed below with their respective formula with equation numbers on the L.H.S. are given as follows: Measurement of Trade Indicators Generally, the degree of trade globalization is measured by country exports, country imports or country overall trade (exports plus imports), each as % of country GDP. However, following the WTO, this paper uses the following measure of the degree of trade globalization based on average of exports and imports as given in equation (1) below: (1) Degree of Country Trade Globalization (or Integration) = Average Trade as % of GDP = {(Country Exports + Country Imports)/2}*100/GDP The paper proposes to measure the relative significance of a country’s trade in relation to global trade and uses separate measures for goods (merchandise) exports, commercial service exports, goods imports, and commercial service imports given by the following four equations (2) through (5) given below: (2) Country Goods Exports as % of World Goods Exports = (Country Goods Exports*100)/World Goods Exports (3) Country Goods Imports as % of World Goods Imports = (Country Goods Imports*100)/World Goods Imports (4) Country Service Exports as % of World Service Exports = (Country Service Exports*100)/World Service Exports (5) Country Service Imports as % of World Service Imports = (Country Service Imports*100)/World Service Imports Going beyond a country’s position in the global context, we will use some trade measures to indicate the bilateral trade between the two countries under study, Bangladesh and India. Several measures are proposed here which are related to bilateral aggregate trade given by the following four equations (6) through (9) given below: (6) Country Overall or Aggregate Trade (T) = (Country Exports + Country Imports) = (X+M) (7) Country Exports as % of Country Total Trade (T) = (Country Exports (X) *100)/Total Trade (T) (8) Country Overall Trade Balance (TB) = (Country Exports – Country Imports) = (X - M) Annual average growth rate of aggregate trade variable (T) between the beginning and the ending year in the sample time-series data: (9) Annual Average Growth Rate of T = [{(Tt-Tt-k)*100/Tt-k}/(k-1)], where k is the number of year in the sample For measuring Bangladesh’s country specific export and import shares, the following equations were used to measure such country-specific market shares given in equations (10) and (11) below: (10) Bangladesh Country-specific export shares = (Bangladesh exports to country j *100) / Bangladesh total exports to the world (11) Bangladesh Country-specific import shares = (Bangladesh imports from country j *100) / Bangladesh total imports from the world Data Sources To measure the above-mentioned trade-related indicators, data were collected from various country specific national sources (both Bangladesh and India) and international sources which are publicly available. The national sources include Dhaka Chamber of Commerce and Industry (DCCI 2016), and India-Bangladesh Chamber of Commerce and Industry (IBCCI 2016). The international data sources include the WTO (2016), The World Bank (2016), Globaledge (2016) data from Michigan State University, among others. Both time-series data from 2009-2016 and cross-section data by major product categories for 2015 were collected and analyzed in the paper.

Source of Information: ATINER'S Conference Paper Series, No: AGR2017-2314.

Article Link (Online Journal):

Funding Source:

1.

Budget:

Total Budget (Tk.) :

Achievement/Findings:

This paper examined empirically the trade profile, trade trends and trade patterns between Bangladesh and India using both time-series aggregate and product-specific disaggregated data for more recent years than any other previous studies. While some topics (such as trade trends and growing bilateral trade deficit) were covered by some other studies that are dated by now, this study utilized not only more recent data, but also covered topic areas that were not covered by other studies before. The latter topic areas include both inter-industry trade based on the traditional comparative advantage theory with the related estimation of revealed comparative advantage along with the estimation of the degree of non-traditional trade known as Intra-industry trade, which are based on product differentiation and economies of scale. The empirical findings of the paper can be summarized as follows: (1) Due to its advantage over resource endowments better resource varieties, higher education and skill level of labor force, better technology, better institutions and infrastructure, bigger internal market with greater size of the economy, India is found to dominate Bangladesh in the context of global trade and global markets. (2) However, at the same time, given some similarity in resource endowments with both countries having abundant low-wage labor supply, both countries seem to have a comparative advantage in similar labor-intensive products, both countries seem to have a greater degree of trade competitiveness than trade complementarities, resulting in both countries competing in similar products in global markets (Basu and Datta 2007a). That creates a problem for a smaller country of Bangladesh to compete against India which has a more diversified basket of export goods. (3) India is also found to dominate strongly in terms of bilateral trade at the aggregate level with stronger trade position vis-à-vis Bangladesh, resulting in a large and persistent trade deficit for Bangladesh with India.

Knowledge Management: Report/Proceedings