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India-Bangladsh Trade Relations: Problem of Bilateral Deficit

Author

Listed:
  • Suparna Basu

    (Department of Economics, Asutosh College, University of Calcutta, Kolkata, India)

  • Debabrata Datta

    (Department of Economics, Asutosh College, University of Calcutta, Kolkata, India)

Abstract

The paper analyzes the reasons behind persistent bilateral trade deficit of Bangladesh with India. It finds that the Bangladesh has export similarity with India and hence faces high export competitiveness. The lack of match between Bangladesh export and Indian import also generates a constraint of complementarity. The paper uses different trade-related indices like RCA and Cosine measures to examine the extent of trade similarity and complementarity in inter-industry bilateral trade. The possibility of intra-industry trade between the two countries is also studied with the help of G-L indices. Finally, an econometric time series analysis is done to identify the determinants of Bangladesh bilateral export and trade deficit. Export has been found to be of random nature and trade deficit has a perverse relation with exchange rate, driven by flow of remittances. The paper suggests that Bangladesh should pursue an appropriate exchange rate policy and aim at increased diversification in her export structure in order to avoid Dutch disease and to reduce the bilateral trade deficit.

Suggested Citation

  • Suparna Basu & Debabrata Datta, 2007. "India-Bangladsh Trade Relations: Problem of Bilateral Deficit," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 42(1), pages 111-129, July.
    • Handle: RePEc:dse:indecr:v:42:y:2007:i:1:p:111-129
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    Citations

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    Cited by:

    1. Sadhna Garg, 2016. "India’s Trade Potential and Prospects with Sri Lanka: 1991 to 2015," South Asian Survey, , vol. 23(2), pages 93-118, September.
    2. Anisul M. Islam, 2018. "Inter- and Intra-industry Trade Relations between Bangladesh and India: Empirical Results," FIIB Business Review, , vol. 7(4), pages 280-292, December.
    3. Kumar, Sushil & Ahmed, Shahid, 2014. "Growth and Pattern of Intra-Industry Trade between India and Bangladesh: 1975–2010," MPRA Paper 61113, University Library of Munich, Germany, revised 29 Dec 2014.
    4. Md. Abul Kashem & Md. Shariful Islam, 2016. "Narendra Modi’s Bangladesh Policy and India–Bangladesh Relations: Challenges and Possible Policy Responses," India Quarterly: A Journal of International Affairs, , vol. 72(3), pages 250-267, September.
    5. Namra Awais, 2016. "Was the SAFTA (Phase II) Revision Successful? A Case Study of Bangladesh’s RMG Exports to India," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 21(1), pages 151-182, Jan-June.

    More about this item

    Keywords

    Trade Deficit; Trade Complementarity; Intra-Industry Trade; Cointegration;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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