An analysis of prime determinants and constraints of Bangladesh's export market: Stochastic frontier gravity model approach

Abstract

This paper adopts the stochastic frontier gravity model approach, using panel data to investigate the prime determinants and constraints of Bangladesh's export industry, and its potential to improve its trading position in relation to its top 40 trading partners. The study finds that, for Bangladesh, gross domestic product (GDP), population, distance, average tariff, trade agreements and exchange rates are the prime determinants of export volume. While GDP, population, trade agreements and exchange-rate depreciation positively affect exports, the distance between Bangladesh and its partner countries and tariff levels negatively impact trade. The study also finds that socio-political-institutional, 'behind-the-border' constraints, such as customs procedures, port inefficiencies and corruption, are restricting trade. The results show that there are huge variations in export levels, even among countries within the same trading blocs, suggesting that a high level of untapped export potential can be realised by removing the behind-the-border constraints and by integrating more efficiently with the international market.