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Problems of Bilateral Trade Deficit between Bangladesh and India: A 2SLS Regression Analysis

Author

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  • Muntasir Murshed
  • Syed Margub Elahi

Abstract

This study investigates the factors that determined the bilateral trade deficit of Bangladesh against India. The results of the Johansen cointegration test indicated that there were long-term associations between the trade deficit of Bangladesh real income levels, and the bilateral RER of both countries. Results from the two-stage least squares regression analyses indicated that a 1% increase in the real income levels of Bangladesh and India aggravated the bilateral trade deficit of Bangladesh by 4.61% and 3.98% respectively while a 1% real appreciation of the bilateral real exchange rate was found to reduce the deficit by almost 6%, ceteris paribus. Results also showed that Bangladesh faced persistent deficits in its bilateral trade balance against India due to its exports being comparatively less elastic than its imports engagements with India. The paper also sheds light on the anti-dumping policy pursued by India that has contributed to the unbalanced trade between the two economies.

Suggested Citation

  • Muntasir Murshed & Syed Margub Elahi, 2019. "Problems of Bilateral Trade Deficit between Bangladesh and India: A 2SLS Regression Analysis," International Journal of Business, Economics and Management, Conscientia Beam, vol. 6(4), pages 215-231.
    • Handle: RePEc:pkp:ijobem:v:6:y:2019:i:4:p:215-231:id:1219
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    Cited by:

    1. Muntasir Murshed & Seemran Rashid, 2020. "An Empirical Investigation of Real Exchange Rate Responses to Foreign Currency Inflows: Revisiting the Dutch Disease Phenomenon in South Asia," The Economics and Finance Letters, Conscientia Beam, vol. 7(1), pages 23-46.

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