Import Inflows of Bangladesh: the Gravity Model Approach

Abstract

Bangladesh which is one of the most significant factors responsible for unfavorable trade balance of the country. The aim of the study is to intend some initiatives for an attempt to ultimately reshaping the trade balance of Bangladesh with her foreign trade partners. The paper examines the existence of the gravity theory for the imports of Bangladesh with its eight major trading partner countries- India, China, Singapore, Japan, Hong Kong, South Korea, USA and Malaysia. The data set consists of yearly data from 1985 to 2003 in a panel approach. The paper comes across with the findings that the gravity theory is consistent with the imports of Bangladesh. That is, the geographical distance of Bangladesh with its partner countries has significant impacts on its imports. But in near future this may change because of different factors such as profitability, easy trade procedures, product delivery time etc. that influence the imports decision more than does the geographical distance. This paper finds mixed relationship between the GDP and imports of Bangladesh. It also shows that the imports of Bangladesh influence the domestic production very little because Bangladesh mostly imports consumer goods rather than capital goods. Moreover, the population of Bangladesh has significant impacts on imports which in turn implies that Bangladesh is not capable of producing adequate consumer goods to meet the increased demand resulted from high population growth. It also shows that partner countries’ GDP has significant positive impacts and partner countries’ population has mixed impact on imports of Bangladesh. This paper concludes that it will be an alarming situation for trade balance of Bangladesh if the imports continue to increase in such a pattern that the rate increases five to eight times more in respect of population increases and at the same time the ratio of capital goods in proportion of total imports decreases.

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