Dr Mahfuz Kabir. Senior Research Fellow, BIISS, Dhaka

Transcription

1 Trend, Potential and Diversification of Exports Dr Mahfuz Kabir Senior Research Fellow, BIISS, Dhaka 11 December 2011

2 Introduction Post-liberation period of Bangladesh witnessed progressive improvement in the average rate of growth of exports Trade performance was low in the 1970s and the 1980s when export was small and marked by annual fluctuations Bangladesh underwent a shift in the trade regime from an inward-looking one to an outward-looking one resulting in higher integration in the global economy The regime shift originated from two sources trade liberalisation policies focusingonreductionoftariffand non-tariff barriers to trade multilateral trade liberalisation under the WTO since 1995

3 Introduction A group dynamic entrepreneurs emerged who could utilise the opportunities in the international market Phase-out of MFA on 31 December 2004 did not result in any decline in RMG exports Exports sustained ti dthe current global lbleconomic slowdown marked by rapid deceleration in global trade External sector faces both opportunities and challenges from an increasingly globalised world with changing trade environment It is important t to seehow trade will evolve in the next 40 years Vector Autoregression (VAR) and Vector Error Correction (VEC) model Tested with historical data

4 Organisation of fthe Paper Growth and Structural t lchange Growth of Exports Pattern of Exports Destinations of Exports Projection of Exports Validation of Historical Data Future Outlook

5 Trend of fdiversification ifi Index

6 Growth of Exports Exports grew at an average annual rate of 7.8% in the 1970s Gradual adjustment of the economy to the warshock and changes in economic policies, export grew at an average annual rate of 9.1% in the 1980s The trade liberalisation policy was intensified in FY1992 In the 1990s, exports grew at an average annual rate of 14.7%, much higher than that achieved in the 1980s Trade liberalisation policies, which reduced the antiexport bias and buoyant world demand led to the rapid growth of exports

7 Growth of Exports Exports grew at an annual average rate of 9.6 percent during the 2000s Nearly double-digit growth amidst several consecutive shocks indeed demonstrates resilience of the export sector Export of RMG products registered more than 40% growth in FY , culminating its emergence as one of the biggest players in the international market Manufactured goods constituted a large share of exports in the early 1970s The share of manufactured exports was about 95% of total exports in FY2010

8 Pattern of Exports Dominated by natural resource intensive exports, such as raw jute, tea, frozen food, fish, and agricultural products in the primary group, and crude fertiliser, jute goods, and leather and leather products in the manufactured group up to mid-1980s Later, Bangladesh shifted from the natural resource intensive manufactures to low technology labour intensive manufactures The emergence of export of RMG set in motion such a shift In FY1987, RMG accounted for more than 50% of total exports Some shift within RMG itself Woven garment completely dominated RMG export in the beginning, the share of knit garment has gradually increased ultimately exceeding that of woven garment in FY08

9 Composition of Exports, FY1973- FY2010 (Percent) Products Primary Goods Of which Raw Jute Manufactured Goods Of which Jute Goods RMG Source: Own calculation from World Bank and GoB data.

10 Destinations of Exports Sl Region European Union (19.94) (35.33) 2, (40.26) 6, (47.99) 7, (43.67) 2. North America (15.15) (32.23) 1, (33.71) 3, (24.58) 3. Middle East (12.79) (6.21) (2.97) (4.46) (1.46) 4. Africa (11.42) (4.94) (2.44) (1.42) (0.49) 5. Developing Asia (10.41) (3.30) (0.58) (0.64) 6. Others , , (30.29) (17.98) (20.03) (20.90) Total (100.00) 1, (100.00) 5, (100.00) 13, (100.00) 17, (100.00)

11 Destination of exports is marked by growing concentration as well as shift in regional composition In 1980 about 20% of total exports entered the EU market. Higher percentages of exports were directed to the EU and North America In recent years, the EU has become the most important destination followed by North America. These two markets absorbed b about t73% of totalt exportsof Bangladesh hin 2008 The shift in export destination is mainly a consequence of the shift in the commodity composition of export EU and North America are the dominant buyers of RMG, currently the most important export of the country Trade in textiles and clothing products was managed from 1974 to 2004 under MFA, which allowed developed importing countries like the USA, the EU and Canada to use quota Bangladesh could develop its RMG sector taking advantage of the quota restrictions faced by large exporting countries

12 Total Merchandise Exports and Trade Balance (million US$)

13 Export Indices Vl Value index of exports Volume indices of exports Unit value index of exports Terms of trade index Purchasing power index of exports

14 Structural Change in Exports Elliott Müller (2006) Test of Existence of the Break H 0 : H 1 : Elliott-Müller Test for Time Varying Coefficients i Test Statistic 1% Critical 5% Critical 10% Critical Value Value Value Exports

15 Optimal Breakpoint: Zivot-Andrews (1992) One-Break Test Allowing for break Minimum t- Break Year in statistic Intercept Trend Both intercept and trend

16 Clemente-Montañés-Reyes (1998) Test in IO Model First Break Year Second Break Year DU1 DU2 Single mean shift *** Double mean shifts ** ** 0.137

17 Role of Trade Policy Export Supply Function following Ben-David and Papell (1997) ARDL (1,1,0,0,1,1) Estimates of Export Supply Function Long Run Short Run (ECM) Regresor Coefficients Repressor Coefficients LEVI *** LEVI *** (0.121) (0.055) LWPI *** (0.097) LWPI *** (0.050) LIND LIND (0.011) (0.008) XRER *** (0.058) XRER (0.080) LXGDP *** (0.172) LXGDP ** (0.057) 057) ECM(-1) *** (0.133) Note: *** and ** indicate that the particular coefficients are significant at Note: and indicate that the particular coefficients are significant at 1, 5 percent level, respectively.

18 Trade Theories: Relevance to Bangladesh s Exports Early contributions Absolute advantage Adam Smith Comparative advantage David Ricardo Three modern theories/hypotheses Heckscher-Ohlin-Samuelson theorem Linder hypothesis: based on preference structure New trade theory IRTS can alter the pattern of comparative advantage

19 Determinants of Bangladesh s Exports Results of a Panel Gravity Model X variable Coefficient TGDP ij,t RFE ij,t * ij,t SIM ij,t *** DIST ij RER ij,t ** BOR ij *** BTA ij,t GOV i ** GOV j ** Constant -- SIM ij, t ln( ) 1 GDPi = ln( ) GDPi + GDPj RFE ij, t = ln GDPi, t ln GDPj, t 2 ln( GDP ) j ln( ) GDPi + GDPj 2 Note: Own estimation with Prais-Winsten estimator adjusted for panel heteroscedasticity and panel-specific AR(1) Export pattern follows Heckscher-Ohlin-Samuelson theorem

20 Ptt Pattern of fbangladesh s ld Exports Inter-industry in nature Destinations are distant countries Exports to the countries ti with dissimilari il preferences Common border (with India) and governance of Bangladesh effect exports positively Real exchange rate influences exports positively

21 Price elasticity of RMG exports Panagariya et al. Razzaque Low High A. Panagariya, S. Shah, and D. Mishra (2001), Demand Elasticities in International Trade: Are They Really Low? Journal of Development Economics, Vol.64, pp A Razzaque (2004) The Small Country Assumption Econometric Estimates and Policy A. Razzaque (2004), The Small Country Assumption, Econometric Estimates and Policy Making: A Reassessment with Bangladesh s RMG Exports to the European Union, Bangladesh Development Studies, Vol 30 (1&2), pp

22 Major Export Destinations by Share in Total Exports (%) USA Germany UK France Belgium Italy Netherland Canada Japan Others Total ** * Up to February ** Up to March Source: Author s calculation from Finance Division data. 22

23 Projection of Key Variables of External Sector: Actual Values GDP (billion US dollars) Merchandise Exports (billion US dollars) Merchandise Imports (billion US dollars) Trade Gap (billion US dollars) Merchandise Export-GDP Ratio (%) Merchandise Import-GDP Ratio (%) Trade Gap as % of GDP FDI (billion US dollars) Source: World Development Indicators and UNCTAD Statistics (online).

24 Vector Autoregression

25 Vector Error Correction

26 Validation GDP

27 Validation Imports

28 Validation Exports

29 Coefficient i of Variation

30 Mean Root Square Error

31 Future Outlook Projections show thatt export/gdp ratio will increase to 20.89% in 2049 and import/gdp ratio will increase to 29.15%. The trade balance will continue to be negative and trade gap/gdp ratio will increase to 8.26%. Newly industrialized countries of East Asia and Southeast Asia experienced a shift from low technology labour-intensive exports to capital intensive exports during period from 1970 to 1990, i.e., they took nearly two to four decades after independence to make a transition. Bangladesh is yet to achieve this transition after forty years of its independence. d

32 Future Outlook RMG export has been dominating manufactured exports in Bangladesh Exports of some relatively ea veycapitala intensive products, such as engineering goods and chemicals, have emerged contributing about 3 percent to total exports in FY Bangladesh is thus a long way from making a transition to dominance of capital intensive export Several factors might be at work for this outcome Bangladesh still has comparative advantage in low technology labour intensive products and it is rational to continue to specialize and export such goods In contrast to NIEs, Bangladesh has not made significant investment in physical and human capital as shown by a stagnant investment/gdp ratio

33 Future Outlook Several factors Trade liberalisation has led to increase in previous specialisation as predicted by Heckscher-Ohlin model Bangladeshi entrepreneurs show herding behaviour in a positive sense New investors tend to invest where others have already been successful and old investors continue to invest where they are already successful There is scope for accidents in determining trade pattern such as Swiss watches th The emergence of shipbuilding industry as an export industry in last few years may signal such a beginning g

34 Thank you very much