The political economy of Bangladesh's large and growing trade deficits with India.
After remaining low throughout the 1970s and 1980s, Bangladesh's trade deficits (as percent of GDP GDP (guanosine diphosphate): see guanine. ) with India have been rising sharply since 1993. The size of its illegal trade deficits with India is also large and perceived to be rising since the early 1990s. Thus, instead of interdependence between two trading neighbours This article is about an Australian soap opera. For other articles with similar names, see Neighbours (disambiguation).
Neighbours is a long-running Australian soap opera, which began its run in March 1985. at the same stage of development, the Bangladesh-India trade relations suggest an absolute dependence of Bangladesh on India. The debate that has now generated in Bangladesh from such a one-sided trade flow has two polar themes. At one extreme are those commentators who consider Bangladesh's large and growing trade deficits with India as a "natural and positive development" on the grounds that India is believed to be at a higher stage of development and to have gained technological maturity in the production of those goods that Bangladesh imports from India. The alternative view is that Bangladesh's large and growing trade deficits are a recent phenomenon and have nothing to do with India's technological maturity or prowess PROWESS Infectious disease A clinical trial–Recombinant Human Activated Protein C [Zovant™] Worldwide Evaluation in Severe Sepsis . As an explanation, such deficits are considered to be the result both of India's deep devaluation devaluation, decreasing the value of one nation's currency relative to gold or the currencies of other nations. It is usually undertaken as a means of correcting a deficit in the balance of payments. policy and tariff tariff, tax on imported and, more rarely, exported goods. It is also called a customs duty. Tariffs may be distinguished from other taxes in that their predominant purpose is not financial but economic—not to increase a nation's revenue but to protect domestic and non-tariff barriers to Bangladesh's exports to its markets.
This paper examines the disaggregated Broken up into parts. structure of trade, as well as the revealed comparative advantage A macroeconomic concept for calculating a relative advantage or disadvantage of a certain country in a certain technological field.
Most commonly referring to an index introduced by Balassa (1965):
RCA = (Eij / Eit) / (Enj / Ent of Bangladesh and India and finds no support for the thesis of Bangladesh's technological imports from India on grounds of their maturity. It then examines the sensitivity of trade flows between the two countries to exchange rates and the possible role of trade liberalisation in generating trade deficits within the framework of intra-industry trade models for differentiated products. The available evidence suggests that through subsidies, interventions and deep devaluation policy, India has artificially created a comparative advantage over Bangladesh in differentiated products. India has also managed to keep its markets closed for Bangladesh's products despite trade negotiations, between the governments. This gives credence to the suggestion that Bangladesh's trade with India is neither fair nor competitive. Finally, the paper considers the political economy of the large and growing trade imbalances between them before drawing policy conclusions.
Bangladesh has experienced persistent trade deficits with India since it gained independence in December 1971. In the early 1970s the governments of Bangladesh and India agreed that trade between them should take place on a state-to-state basis so as to regulate the trade balance, avoid trade friction and, eventually, eliminate illegal trade (smuggling smuggling, illegal transport across state or national boundaries of goods or persons liable to customs or to prohibition. Smuggling has been carried on in nearly all nations and has occasionally been adopted as an instrument of national policy, as by Great Britain ). The reality was very different. In its official trade, Bangladesh experienced persistent trade deficits. (1) One reason was that the real exchange rate of Bangladesh's taka ta·ka
See Table at currency.
[Bengali appreciated sharply with India's rupee RUPEE, comm. law. A denomination of money in Bengal. In the computation of ad valorem duties, it is valued at fifty-five and one half cents. Act of March 2, 1799, s. 61; 1 Story's L. U. S. 627. Vide Foreign coins.
2. (2) because of relatively high inflation in Bangladesh and this caused an increase in imports from India (legal and illegal). On the export side, Bangladesh encountered supply shortages in products that were selected for exports to India through official channels. Besides production shortfalls, whatever products were available for exporting to India were diverted di·vert
v. di·vert·ed, di·vert·ing, di·verts
1. To turn aside from a course or direction: Traffic was diverted around the scene of the accident.
2. to illegal trade which devaluation of Bangladesh's taka had made attractive [Lifschultz (1974, 1974a)]. The bilateral bilateral /bi·lat·er·al/ (-lat´er-al) having two sides, or pertaining to both sides.
1. Having or formed of two sides; two-sided.
2. trade agreement for smooth trade flows was in shambles. India exported low quality products to Bangladesh, while Bangladesh exports to India (legal and illegal) were necessities like rice, fish and raw jute. So India soon earned the title of "economic imperialist". (3) This shows that despite early euphoria An interpreted programming language developed in 1993 by Robert Craig at Rapid Deployment Software that is noted for its execution speed, flexibility and simplicity. It can simulate any programming method including object-oriented constructs. on both sides, trade relations between them had a rocky start. As Bangladesh's economic condition deteriorated over the next few years [Hossain (1996)], the surviving economic goodwill evaporated evaporated
reduced in volume by evaporation; concentrated to a denser form. with the fall of the then pro-Indian Mujib government on 15 August 1975. (4)
Having passed more than a decade without an improvement in trade relations, Bangladesh and India have now entered into a phase where they find themselves in the midst Adv. 1. in the midst - the middle or central part or point; "in the midst of the forest"; "could he walk out in the midst of his piece?"
midmost of open trade friction because of a sudden growth of trade deficits in favour of India. Appendix Table A.1 shows that Bangladesh's trade deficits with India were low (as percent of GDP) throughout the 1970s and 1980s, but they increased rapidly from 1993. In fact the trade deficit ratio rose from 0.5 percent of GDP in 1992 to 3.2 percent in 1996. This latest figure represents about 40 percent of the global trade deficit in that year. In absolute figures, this was close to US$ 1 billion--an unprecedented growth of Bangladesh's imports from India without a matching increase in exports. Bangladesh has now become India's third or fourth largest export destination. (See Appendix B for an application of the gravity model Gravity models are used in various social sciences to predict and describe certain behaviors that mimic gravitational interaction as described in Isaac Newton's law of gravity. for Bangladesh's imports from India.) By sharp contrast, India's imports from Bangladesh remain small and erratic er·rat·ic
1. Having no fixed or regular course; wandering.
2. Lacking consistency, regularity, or uniformity: an erratic heartbeat.
3. and constitute merely 0.5 percent of its global imports [Rahman (1997) and The Independent (10 August, 1998)].
Along side official trade, Bangladesh has a parallel illegal trade with India. The volume of Bangladesh's illegal imports from India is large and has been rising since the early 1990s. (5) However the volume of its illegal exports to India remains small and has (perhaps) declined over the past few years. The resulting trade imbalance imbalance /im·bal·ance/ (im-bal´ans)
1. lack of balance, such as between two opposing muscles or between electrolytes in the body.
2. dysequilibrium (2). in favour of India is reported to be somewhere between US$ 1 billion and US$ 2 billion. Such large trade imbalance is settled using foreign hard currencies, (6) gold, and both Bangladesh's taka and India's rupee [Rahman and Razzaq (1998) and World Bank (1996)]. Some consumer durables Consumer durables
Consumer products that are expected to last three years or more, such as an automobile or a home appliance.
See durable goods. (such as electronic goods and luxury products) that are officially imported by Bangladesh from other countries are also smuggled smug·gle
v. smug·gled, smug·gling, smug·gles
1. To import or export without paying lawful customs charges or duties.
2. To bring in or take out illicitly or by stealth. to India as payment for illegal imports.
The summary information given above shows that instead of interdependence between two trading neighbours, the Bangladesh-India trade relations suggest an absolute dependence of Bangladesh on India. Bangladesh's trade deficits of $ around 2 billion with India, is considered too severe a drain on scarce foreign exchange reserves Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits held by central banks and monetary authorities. . This sentiment is reflected in the print media that has lately become a lively debating forum. (7) The debate has two polar themes. At one extreme are those commentators who consider Bangladesh's large and growing trade deficits with India as a "natural and positive development" on the ground of India's higher stage of development and technological maturity in the production of those goods that Bangladesh imports from India [Sobhan (1990)]. (8) By contrast, critics follow a broad analytical theme that can be summarised as follows. Bangladesh's large and growing trade deficits with India are a recent phenomenon and have nothing to do with India's technological maturity or prowess. Such deficits are the result of India's both deep, if not "beggar-thy-neighbour", devaluation policy and tariff and non-tariff barriers to Bangladesh's exports to its markets [Ahmed (1998); Khan khan
Historically, the ruler or monarch of a Mongol tribe. Early on a distinction was made between the title of khan and that of khakan, or “great khan.” Later the term khan was adopted by the Seljuq and Khwarezm-Shah dynasties as a title for the highest (1995) and Rahman (1997)].
This paper conducts an in-depth investigation of the opposing views outlined above from both an empirical and a political economy perspective. While the trade imbalance between two countries by itself need not constitute an economic problem, (9) Bangladesh's trade deficits with India may need consideration as a special case. India's dominant position in South Asia This article is about the geopolitical region in Asia. For geophysical treatments, see Indian subcontinent.
South Asia, also known as Southern Asia is acknowledged. But its arrogance Arrogance
See also Boastfulness, Conceit, Egotism.
Artfulness (See CUNNING.)
traditional symbol of arrogance. [Gem Symbolism: Jobes, 81]
Arachne in bilateral dealings has not endeared India to its small neighbours. (10) On the Bangladesh side, India-bashing remains a popular political game. The reason is simple and clear. At a deeper level, the mistrust that exists between Pakistan and India for historical reasons also remains alive between Bangladesh and India.
All these factors explain why Bangladesh's trade relations with India are more than an economic issue and have to be analysed within a political economy perspective. As a precursor precursor /pre·cur·sor/ (pre´kur-ser) something that precedes. In biological processes, a substance from which another, usually more active or mature, substance is formed. In clinical medicine, a sign or symptom that heralds another. to such an analysis based on empirical results, let us first review the structure of trade between them. By examining the disaggregated structure of trade, as well as the revealed comparative advantage of Bangladesh and India, we can judge how far the empirical evidence will support the thesis of India's technological maturity. Thereafter, we examine the evidence for sensitivity of trade to foreign exchange rates and the possible role of liberalisation. Finally, we consider the political economy of trade balances before reaching our conclusions.
II. STRUCTURE OF BANGLADESH'S IMPORTS FROM, AND EXPORTS TO, INDIA
Table 1 reports data for the percentage shares of Bangladesh's official imports from India, classified by commodity groups, during 1988-1996. It shows that live animals, animal products, vegetable products, mineral products, chemical products, textile and textile articles, and base metals are Bangladesh's major imports from India. Of these product groups, the Indian share of live animals, animal products and vegetable products showed a sharp rise from 7 percent in 1988 to 56 percent in 1996. The shares of textile and textile articles, mineral products, and base metals and articles of base metals also showed a rising trend from 1995. The share of machinery, electrical equipment, vehicles and transport equipment declined sharply from 34 percent in 1988 to just 5 percent in 1991. The share of these products increased again to the level of 31 percent in 1996. On the whole, it can be noticed that the percentage share figures for Indian products of most commodity groups increased significantly during the last two years. This is an indication that although live animals, animal products and vegetable products are Bangladesh's main imports from India, Indian products under other commodity groups have recently made inroads inroads
make inroads into to start affecting or reducing: my gambling has made great inroads into my savings
inroads npl to make inroads into [+ into Bangladesh's markets as well. In particular, India is in the process of becoming the major import source of textile and textile products, vehicles and transport equipment, and chemical products. Until the early 1990s, Bangladesh imported these products from other countries. This recent dramatic shift in import sourcing has increased the share of Bangladesh's imports from India from about 6 percent in 1990 to 16.6 percent in 1996. If smuggled goods are included then more than 25 percent of Bangladesh's current imports come from India alone.
Given such a structure of the import trade, Table 2 shows that there are only three major products--chemical fertiliser, raw jute, and frozen fish--that dominate Bangladesh's exports to India. Neither the value of exports nor the structure of export trade has changed significantly since the early 1970s.
Table 3 reports data for the composition of illegal trade between Bangladesh and India as obtained from the Bangladesh Institute of Development Studies The Bangladesh Institute of Development Studies (BIDS) is a multi-disciplinary organisation that conducts policy research on development issues for Bangladesh. Supported by the Government of Bangladesh, BIDS functions as a think tank, helping formulate socio-economic policies. (BIDS) Survey conducted in 1994. It shows that livestock, poultry poultry, domesticated fowl kept primarily for meat and eggs; including birds of the order Galliformes, e.g., the chicken, turkey, guinea fowl, pheasant, quail, and peacock; and natatorial (swimming) birds, e.g., the duck and goose. , fish and related products, and other agricultural products constituted about 52 percent of Bangladesh's illegal imports from India. Processed food and tobacco, textiles, and other consumer goods consumer goods
Any tangible commodity purchased by households to satisfy their wants and needs. Consumer goods may be durable or nondurable. Durable goods (e.g., autos, furniture, and appliances) have a significant life span, often defined as three years or more, and constituted about 43 percent of such illegal imports. Copper, brass, other metals, and fish constituted about 91 percent of Bangladesh's illegal exports to India. Foreign electronic goods (including those assembled as·sem·ble
v. as·sem·bled, as·sem·bling, as·sem·bles
1. To bring or call together into a group or whole: assembled the jury.
2. in Bangladesh), cigarettes, wine, fertiliser, gold, raw jute, and imported cement were some other illegal exports to India [Ghafur (1990)].
In a (just completed) BIDS follow-up study on smuggling, Rahman and Razzaq (1998) found that cattle, textile items, cotton and silk sari, sugar, salt, bicycle and truck parts are the most important illegal import items from India. They also reported that in terms of value, livestock, fisheries, and poultry dominate the illegal import trade, which are followed by textiles, agricultural products, and processed food. In the illegal export side, the dominant items include gold, high counts yarn yarn, fibers or filaments formed into a continuous strand for use in weaving textiles or for the manufacture of thread. A staple fiber, such as cotton, linen, or wool, is made into yarn by carding, combing (for fine, long staples only), drawing out into roving, then (imported), copper, brass, and other metals.
In essence, the key information that one can glean glean
v. gleaned, glean·ing, gleans
To gather grain left behind by reapers.
1. To gather (grain) left behind by reapers.
2. from Tables 1 through 3 is that the bulk of Bangladesh's imports (legal and illegal) from India are consumer goods and materials for consumer goods. In addition, Bangladesh's exports (legal and illegal) to India include only those products which have some scarcity Scarcity
The basic economic problem which arises from people having unlimited wants while there are and always will be limited resources. Because of scarcity, various economic decisions must be made to allocate resources efficiently. premiums, such as chemical fertiliser, raw jute, fresh fish, imported electronic goods, gold, copper, brass and other metals.
Having reviewed the structure of trade, the following two sections are devoted to an investigation of its underlying economic rationale. The focus is on whether India has comparative or competitive advantage in the production and export of those products which Bangladesh imports (legally and illegally) from that country. As part of the investigation, the revealed comparative advantages of the two countries for various product categories are computed for comparison.
III. ECONOMIES OF BANGLADESH AND INDIA: ARE THEY STRUCTURALLY DIFFERENT?
Is the economy of Bangladesh The economy of Bangladesh is the 31th largest economy in the world as measured by purchasing power parity (PPP). It has made significant strides in its economic sector since its independence in 1971. structurally different from that of India? As indicated earlier, some authors, such as Sobhan (1990, 1996), think so and rationalise Verb 1. rationalise - structure and run according to rational or scientific principles in order to achieve desired results; "We rationalized the factory's production and raised profits"
rationalize Bangladesh's large and growing trade deficits with India in terms of actual or perceived technological gaps between these two countries. Their argument goes like this. By adopting an import-substituting strategy for industrialisation since its independence in 1947, India has developed a capital-intensive industrial/manufacturing production base. This, in line with suggestions by Amsden (1989) for South Korea and Blumenthal (1980) for Japan, has allowed India to gain "dynamic comparative advantage by forcing capital-intensive industry within a labour-surplus economy". (11) India has thus been able to produce and export both capital and manufactured consumer goods to relatively less developed countries, including Bangladesh. As Bangladesh has failed to develop a manufacturing production base, its comparative advantage remains stuck to the production and exporting of primary goods or raw material for manufacturing production. Given such different production structure, India and Bangladesh are a classic example in which both countries can derive benefits from growing trade flows. The crux Crux (krks) [Lat.,=cross], small but brilliant southern constellation whose four most prominent members form a Latin cross, the famous Southern Cross. of such a hypothesis is its reliance on the assumption that the economies of Bangladesh and India are structurally different with a built-in production-trade structure that favours India in an environment of freer trade. Can this be substantiated with statistical evidence?
The standard Hecksher-Ohlin-Samuelson model relies on relative factor endowments, such as land, labour, capital, natural resources, skill/human capital, and research and technology, to explain the comparative advantage of a country in the production and export of certain goods against the others. In explaining international trade flows, it is necessary to put emphasis on comparative advantage and the factors that determine it. The reason is that although it is widely acknowledged that the principle of comparative advantage is not adequate as an explanation for inter-country trade flows, most other explanations of trade flows are based, directly or indirectly, on this fundamental principle [Ethier (1995)]. For example, firms in a country can succeed internationally relative to their competitors if they possess what is called sustainable competitive advantage. There are two types of competitive advantage that firms can gain: lower cost and product differentiation Product Differentiation
A source of competitive advantage that depends on producing some item that is regarded to have unique and valuable characteristics. . What are the factors that can create such competitive advantage? Porter (1990) suggests that the factors that shape the environment in which local firms gain competitive advantage include factors conditions (human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. , physical resources, knowledge resources, capital resources, infrastructure), demand conditions, related and supporting industries, and firm strategy, structure and rivalry Rivalry
Robbery (See THIEVERY.)
Rudeness (See COARSENESS.)
Brom Bones and Ichabod Crane
bully and show-off compete for Katrina’s hand. [Am. Lit. . This shows that both the comparative advantage and competitive advantage in the production of exportable products are dependent on a set of domestic factor conditions. There are no apparent reasons to believe that trade between Bangladesh and India is independent of such factor conditions. Therefore, one must justify by applying the principle of comparative advantage or competitive advantage why the current trade flows are natural or a positive development from the viewpoint of Bangladesh.
Testing for comparative advantage of a nation is not easy and can be misleading [Wong (1995)]. Also, lack of detailed data [or factor endowments for countries like Bangladesh and India are a major constraint Constraint
A restriction on the natural degrees of freedom of a system. If n and m are the numbers of the natural and actual degrees of freedom, the difference n - m is the number of constraints. to such an exercise. As an exploratory exercise, we examine this issue from two different ways. First, we examine the levels of socio-economic development of these countries. Second, we estimate the revealed comparative advantage (and disadvantage) of both these countries for a selected number of years since 1975.
Appendix Table A.2 lists the key socio-economic indicators of Bangladesh and India along with Bangladesh's other major trading partners. The idea is to examine whether India's economy reveals any structural differences from that of Bangladesh. Contrary to popular perceptions, Bangladesh's economy is more like that of India. Both are labour surplus agricultural economies and have achieved a low level of socio-economic development. (12) It raises doubt about the perception that India has achieved a higher stage of development and thereby acquired a comparative advantage relative to Bangladesh in the production and export of capital and technology-intensive products. Table A.2 shows that neither India nor Bangladesh has a comparative advantage in the production of capital and technology-intensive products. (13) However, when the data for India are compared with those of Bangladesh's other trading partners in North and South East Asia East Asia
A region of Asia coextensive with the Far East.
East Asian adj. & n. , Europe and North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , it becomes obvious that the countries of these latter regions have achieved higher stages of development and thereby gained comparative advantage relative to both India and Bangladesh in the production and export of capital and technology-intensive products. In fact, this is reflected in the direction of Bangladesh's import trade of capital goods Capital Goods
Any goods used by an organization to produce other goods.
Examples of capital goods include office buildings, equipment, and machinery.
See also: Capital Expenditure, Disinvestment
Capital goods . Table 1 shows that despite India's deep currency devaluation Currency devaluation
A deliberate downward adjustment in the official exchange rates established, or pegged, by a government against a specified standard, such as another currency or gold. , these countries have roughly maintained their shares in Bangladesh's imports of capital and technology-intensive products.
What could be the reason? Is it a prejudice against the Indian products or simply a reflection of India's lack of competitiveness in technology-intensive products? The fact is that India produces low-quality capital and technology-intensive goods under both tariff and non-tariff barriers. These products meet India's own domestic demand and have failed to make any headway head·way
1. Forward movement or the rate of forward movement, especially of a ship.
2. Progress toward a goal.
3. The clear vertical space beneath a ceiling or archway; clearance.
4. in the international markets. Unlike its capital or technology-intensive products, India's agricultural products and low-quality consumer goods have made inroads into Bangladesh's markets. These goods are relatively cheap and most poor consumers purchase them, even though their quality is sub-standard. These products are cheaper not because India's firm have suddenly gained competitive cost advantage in the production of these goods, but the deep devaluation of its currency has made them cheaper in Bangladesh's markets. Most of India's products in Bangladesh's markets also enter illegally without paying any tariffs This is a list of tariffs and trade legislation:
For example, data entry validity checking determines whether the data make sense (numbers fall within a range, numeric data the assertion that India has gained either comparative or competitive advantage in the production and export of consumer goods or materials for consumer goods.
IV. BANGLADESH AND INDIA'S REVEALED COMPARATIVE ADVANTAGE
In this section, we estimate the revealed comparative advantage (RCA See RCA connector and video/TV history. ), (14) an indirect measure of comparative advantage, for both Bangladesh and India's SITC SITC Standard International Trade Classification
SITC Six in the City (Milwaukee, WI)
SITC State Information Technology Consortium
SITC Spatial Information Technology Center (Fulton-Montgomery Community College) 1 and 2-digit industries for selected years beginning from 1975. The aim is to use this approach to test if the economies of Bangladesh and India are structurally different and if India has a comparative advantage over Bangladesh in the production and export of those agricultural and manufactured goods manufactured goods npl → manufacturas fpl; bienes mpl manufacturados
manufactured goods npl → produits manufacturés which Bangladesh imports from India. Abbott (1996) suggests that provided a country's export specialisation is not distorted by government policies, an index value above (below) unity would indicate a comparative advantage (disadvantage) relative to the rest of the world.
The RCA estimates in Table 4 show that Bangladesh and India's revealed comparative advantage and disadvantage are in similar types of products. Bangladesh has a revealed comparative advantage in food, beverages and tobacco, manufactured goods, textile fibres, textile yarn and fabrics, and clothing, and its revealed comparative disadvantage is in mineral fuels and related materials, chemicals and machinery and transport equipment. Similarly, India has a revealed comparative advantage in food, beverages and tobacco, manufactured goods, textile yarn and fabrics, and clothing, and its revealed comparative disadvantage is in mineral fuels and related materials, chemicals, and machinery and transport equipment. It is important to note that unlike Bangladesh, India does not show stable and strong revealed comparative advantage in textile fibres. Also, while Bangladesh appears to have lost recently its revealed comparative advantage in crude materials, oils and tats, India still maintains its revealed comparative advantage in these products. In short, as both countries' revealed comparative advantages are in similar types of labour-intensive, low-technology products, they are competitors in these products in international markets. Therefore, according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. the traditional Hecksher-Ohlin-Samuelson model, which emphasises gains from trading products which embody em·bod·y
tr.v. em·bod·ied, em·bod·y·ing, em·bod·ies
1. To give a bodily form to; incarnate.
2. To represent in bodily or material form: different factor proportions, the scope for trade between Bangladesh and India is limited in these products. (15)
If India does not necessarily have a comparative advantage over Bangladesh in the production and export of agricultural and labour-intensive, low-technology manufactured goods then why has it been so successful lately in penetrating penetrating
breaching the tissues of the body. Bangladesh's markets with such products? This question can be answered by invoking both the ideas of intra-industry trade of differentiated products and the political economy of currency devaluation. In the following two sections, we will show that Bangladesh's trade deficits with India are the result of both India's sharp devaluation of currency and the closed nature of its economy insofar in·so·far
To such an extent.
Adv. 1. insofar - to the degree or extent that; "insofar as it can be ascertained, the horse lung is comparable to that of man"; "so far as it is reasonably practical he should practice as imports of differentiated products from Bangladesh are concerned.
V. THE REAL EXCHANGE RATE AND TRADE FLOWS
To examine the impact of the real exchange rate of Bangladesh's taka against India's rupee on trade flows between these countries, we specify and estimate an import demand function for Bangladesh in the following log-linear form:
ln([MI.sup.bi]/[P.sup.m]) = [[alpha].sub.0] + [[alpha].sub.1] ln y + [[alpha].sub.3] ln [R.sup.bi]
[IM.sup.bi]/[P.sup.m] = Bangladesh's imports from India (million taka) ([IM.sup.bi]), deflated de·flate
v. de·flat·ed, de·flat·ing, de·flates
a. To release contained air or gas from.
b. To collapse by releasing contained air or gas.
2. by the import price index of Bangladesh ([P.sup.m]);
y = Bangladesh's GDP at constant prices (million taka); and
[R.sub.bi]= the real exchange rate of Bangladesh's taka with India's rupee, defined as [R.sup.bi] = [E.sup.bi]([CPI (1) (Characters Per Inch) The measurement of the density of characters per inch on tape or paper. A printer's CPI button switches character pitch.
(2) (Counts Per I .sup.i]/[CPI.sup.b]) where [E.sup.bi] = the nominal exchange rate Nominal exchange rate
The actual foreign exchange quotation in contrast to the real exchange rate, which has been adjusted for changes in purchasing power. of Bangladesh's taka with India's rupee, [CPI.sup.i] = consumer price index in India and [CPI.sup.b] = consumer price index in Dhaka, Bangladesh.
The time series properties of variables in this equation are reported in Appendix Table A.3. The DF and ADF (1) (Application Development Facility) An IBM programmer-oriented mainframe application generator that runs under IMS.
(2) (Automatic Document Feeder) A paper stacker that feeds one sheet of paper at a time into the unit. test results show that all these variables have a unit root, although given the small sample size, these results are only indicative. However, the regression regression, in psychology: see defense mechanism.
In statistics, a process for determining a line or curve that best represents the general trend of a data set. results reported in Table 5 may be treated as a long-run cointegral relation among real imports, real output, and the real exchange rate. Two sets of OLS OLS Ordinary Least Squares
OLS Online Library System
OLS Ottawa Linux Symposium
OLS Operation Lifeline Sudan
OLS Operational Linescan System
OLS Online Service
OLS Organizational Leadership and Supervision
OLS On Line Support
OLS Online System regression results are reported for a number of sample periods beginning from 1974, and then the initial sample period is increased by one observation since 1988. (In one set of regressions, a dummy variable This article is not about "dummy variables" as that term is usually understood in mathematics. See free variables and bound variables.
In regression analysis, a dummy variable for trade liberalisation is introduced.) (16) The idea of increasing the sample size by one observation since 1988 is to capture the impact of sharp appreciation of the real exchange rate of Bangladesh's taka with India's rupee on import flows from this country from that year. In the regression results the real exchange rate enters with one period lag as it performs better in a statistical sense.
The regression results show that the coefficient coefficient /co·ef·fi·cient/ (ko?ah-fish´int)
1. an expression of the change or effect produced by variation in certain factors, or of the ratio between two different quantities.
2. of real income is significant and stable. The value of the income coefficient exceeds unity, implying that Bangladesh's imports from India are income-elastic; that is, they are luxuries! The coefficient of the real exchange rate bears a negative sign and becomes significant when the sample period of estimation estimation
In mathematics, use of a function or formula to derive a solution or make a prediction. Unlike approximation, it has precise connotations. In statistics, for example, it connotes the careful selection and testing of a function called an estimator. is extended up to the 1990s. The coefficient value of the real exchange rate exceeds unity, implying that Bangladesh's imports from India are price-elastic. The high price responsiveness of imports from India reflects the fact that they compete with both Bangladesh's products and its imports from other countries.
The overall results indicate that the appreciation of the real exchange rate of Bangladesh's taka is the main reason for the rapid growth of imports from India since the early 1990. (17) Other factors, such as the sharp reduction of tariffs, also played a critical role in imports from India. It may be noted that India has been successful in penetrating Bangladesh's markets since the early 1990s when Bangladesh accelerated liberalisation of its import trade. As part of trade liberalisation, Bangladesh reduced tariffs and withdrew various subsidies on import competing industries. Rahman (1997) points out that the Indian exporters have availed themselves of the opportunity of exporting to Bangladesh's markets particularly those items for which the tariff reductions were relatively radical. Table 6 shows that the average tariff rate for the Indian products was reduced from 31 percent in 1992 to 12 percent in 1996, whereas the average tariff rate for global imports was reduced from 24 percent to 17 percent during the same period. The reason for such a sharp reduction of tariffs for the Indian products is not known. It is possible that the policy-markers in Bangladesh intentionally in·ten·tion·al
1. Done deliberately; intended: an intentional slight. See Synonyms at voluntary.
2. Having to do with intention. or unintentionally acted in the interests of India when they lowered tariffs for products where India had already made inroads into Bangladesh's markets with the help of its deep currency devaluation. The low average tariff rate also reflects the fact that most Indian goods that enter into Bangladesh's markets through official channels are either consumer goods or materials for consumer goods, which are subject to very low or zero-rates of tariffs. Corruption at customs posts could be another factor. It could partly explain why there was an explosive growth of zero tariff imports of about 338 percent in 1995 and a relatively lower growth rate of 68 percent in 1996. The rapid growth of zero-tariff imports increased the share of such imports from 11 percent in 1992 to 27 percent in 1996 [Bangladesh (1997)].
With respect to the exchange rate policy, an important question is why was the taka not devalued de·val·ue also de·val·u·ate
v. de·val·ued also de·valu·at·ed, de·val·u·ing also de·val·u·at·ing, de·val·ues also de·val·u·ates
1. To lessen or cancel the value of. sufficiently to neutralise Verb 1. neutralise - get rid of (someone who may be a threat) by killing; "The mafia liquidated the informer"; "the double agent was neutralized"
do in, knock off, liquidate, neutralize, waste the impact of India's devaluation. Since official publication is conspicuously con·spic·u·ous
1. Easy to notice; obvious.
2. Attracting attention, as by being unusual or remarkable; noticeable. See Synonyms at noticeable. silent on India-Bangladesh trade deficits and the causative caus·a·tive
1. Functioning as an agent or cause.
2. Expressing causation. Used of a verb or verbal affix.
caus factors (including exchange rates) the government's relative inaction in·ac·tion
Lack or absence of action.
lack of action; inertia
Noun 1. on the exchange rate front can be explained as official reluctance to adopt an India-centric tit-for-tat devaluation policy to avoid antagonising its big neighbour. Second, since Bangladesh's exports to India are negligible This article or section is written like a personal reflection or and may require .
Please [ improve this article] by rewriting this article or section in an . anyway, the appreciation of the taka was not going to have any impact on its exports to that country. (There is no powerful pressure group in Bangladesh to lobby for devaluing currency sufficiently as a means to promote exports to India.) Third, it is routinely accepted by decision makers in Bangladesh that currency devaluation raises inflation, (18) which may cause political instability.
Regression Results of India's Imports from Bangladesh
A regression equation Regression equation
An equation that describes the average relationship between a dependent variable and a set of explanatory variables. of the form specified above was used to estimate a demand function for India's imports from Bangladesh. We experimented with and without lags of variables but the regression results always turned out to be statistically unsatisfactory. For an example, we report the following estimated equation for the sample period 1974-1993.
ln ([IM.sup.ib]/[P.sup.mi])t = 10.49 - 0.64 ln [y.sup.i.sub.t], (1.13) (0.76) + 0.40 ln [R.sup.bi.sub.t]] (0.27)
Estimator: OLS [R.sup.2] = -0.06, DW = 1.94
In the results the figures in parentheses are absolute t-ratios, [R.sup.2] is the adjusted coefficient of determination Coefficient of determination
A measure of the goodness of fit of the relationship between the dependent and independent variables in a regression analysis; for instance, the percentage of variation in the return of an asset explained by the market portfolio return. Also known as R-square. and DW is Durbin-Watson statistic The Durbin-Watson statistic is a test statistic used to detect the presence of autocorrelation in the residuals from a regression analysis. It is named after James Durbin and Geoffrey Watson. . The variables are defined as follows: [IM.sup.ib]/[P.sup.mi]= Bangladesh's exports to India (million rupee) deflated by India's import unit value index ([P.sup.mi]), [y.sup.i] = India's GDP at constant prices (billion rupee), and [R.sup.bi] = the real exchange rate of Bangladesh's taka with India's rupee. The overall results confirm what is evident from casual observation of raw data: that Bangladesh's exports to India are not sensitive to India's income and/or the relative price movement. This is taken to be indicative of the presence of prohibitive pro·hib·i·tive also pro·hib·i·to·ry
1. Prohibiting; forbidding: took prohibitive measures.
2. tariff and non-tariff barriers.
VI. TRADE LIBERALISATION AND INTRA-INDUSTRY TRADE
The intra-industry trade models suggest that large-scale trade is possible among countries with similar factor endowments provided that these countries engage in the exchange of differentiated products of the same industry or broad product group. In general, intra-industry trade arises in order to take advantage of economies of scale in production. In a free trade economy, international competition forces firms to produce one or at most a few varieties and styles of the same product, rather than many different varieties and styles, in order to keep unit costs low. Such a market-enforced specialisation in certain varieties and styles allow a country to import other varieties and styles from abroad. The importance of intra-industry trade becomes apparent when tariffs and other obstructions to trade flows are removed, implying an increase in intra-industry trade following the opening up of an economy [Salvatore (1995)]. Intra-industry trade creates closer links among the countries involved in such trade by providing more positive gains to all of them than what inter-industry trade provides. This proposition remains valid in the context of reform and internationalisation (programming) internationalisation - (i18n, globalisation, enabling, software enabling) The process and philosophy of making software portable to other locales.
For successful localisation, products must be technically and culturally neutral. of manufacturing activities, which enhance assembly production from imported parts and components in different countries [Dixit and Grossman (1982)]. Under these circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact.
2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or , political opposition to such a market-driven economic cooperation is expected to be minimal. Further, in the literature it is argued that changes in income distribution induced by trade liberalisation would be less alarming if structural adjustment in industries took the form of intra-industry rather than inter-industry characteristics. In short, the prospect of closer economic cooperation among a group of countries can be determined by analysing the status of intra-industry trade within the concerned group of countries.
Front this viewpoint, Bangladesh and India should not be much different. We have shown earlier that these countries have a greater scope for intra-industry trade than inter-industry trade given their similar factor conditions. Appendix Tables A.4-A.6 show that intra-industry trade with the rest of the world has increased in both Bangladesh and India for some groups of commodities following trade liberalisation. However such trade did not take place for India insofar as Bangladesh's products are concerned. Bangladesh still exports some traditional specialised products to India and has totally failed to export any differentiated products to this country. Unlike India, most of Bangladesh's imports from India are differentiated products of the same industry or commodity group that Bangladesh produces and exports. This has happened because Bangladesh has opened up its economy at a more rapid rate than India and allowed the differentiated Indian products to enter into its markets. India did not reciprocate re·cip·ro·cate
v. re·cip·ro·cat·ed, re·cip·ro·cat·ing, re·cip·ro·cates
1. To give or take mutually; interchange.
2. To show, feel, or give in response or return.
Why did India fail to import differentiated products from Bangladesh? There are two plausible explanations. First, although India has specialised, and reaped economies of scale, in both agricultural-based products and low-quality, low-priced manufactured goods for Bangladesh's markets, Bangladesh has failed to specialise in any differentiated products for exports to India. Second, although India has somewhat opened up its economy, there are both tariff and non-tariff barriers to Bangladesh's exports of differentiated products to India.
In general, the tariff rates in India for most products are much higher than those in Bangladesh. For example, the average tariff rate in India decreased from 128 percent in 1991 to 53 percent in 1994 compared with the decrease in the average tariff rate in Bangladesh from 85 percent to 26 percent during the same period [Bangladesh (1995)]. Although India provides some tariff concessions to certain specialised products from other South Asian countries (including Bangladesh) under South Asian Preferential pref·er·en·tial
1. Of, relating to, or giving advantage or preference: preferential treatment.
2. Trade Agreements (SAPTA SAPTA South Asian Preferential Trade Agreement ), these facilities remain unutilised as Bangladesh does not produce such specialised products. The 40 percent value added Value Added
The enhancement a company gives its product or service before offering the product to customers.
This can either increase the products price or value. restriction imposed by India on South Asian products eliminate most exportable products of these countries from receiving India's concessional tariff facilities. In short, as Chopra et al. (1995:3,54) write, despite its trade liberalisation, India remains the most protected economy in Asia:
Tariff rates remain relatively high by international standards, while imports of consumer goods and trade in agricultural commodities continue to be subject to quantitative restrictions.... India's trade regime remains one of the most protected in Asia and progress in trade liberalisation lags behind most other developing economies.
Along with tariff barriers, India has designed and perpetuated almost unpenetrable non-tariff barriers to imports from other countries such as the import licensing system, canalisation Noun 1. canalisation - the production of a canal or a conversion to canals
production - the act or process of producing something; "Shakespeare's production of poetry was enormous"; "the production of white blood cells"
2. , the actual user policy, phased manufacturing programmes that provide for progressive import substitution Substitution
put her own son in place of Orestes; her son was killed and Orestes was saved. [Gk. Myth.: Zimmerman, 32]
robber freed in Christ’s stead. [N.T.: Matthew 27:15–18; Swed. Lit. , industrial licensing, and government purchase preferences given to domestic producers. The rationale of some of these non-tariff barriers to imports can be traced to the wartime (World War II) criteria of "essentiality" and "indigenous availability" as guiding principles of import policy. India's restrictive attitude towards imports is reinforced by a variety of other ideas, policies, and interests, namely: the belief that direct controls over imports are an integral part of planned economic development; policies to protect artisan and small-scale industries from foreign competition; industrial dispersal dis·per·sal
The act or process of dispersing or the condition of being dispersed; distribution.
Noun 1. dispersal policies; widespread and deeply rooted anti-trader sentiments; the requirements of dealing with other countries with tightly controlled trade regimes (for example, the former Soviet Union and East European countries); the desire to insulate in·su·late
tr.v. in·su·lat·ed, in·su·lat·ing, in·su·lates
1. To cause to be in a detached or isolated position. See Synonyms at isolate.
2. low-income producers and consumers from price fluctuations; ideas about infant industries; and pessimism pessimism, philosophical opinion or doctrine that evil predominates over good; the opposite of optimism. Systematic forms of pessimism may be found in philosophy and religion. about the prospects for commodity exports [Pursell (1992)].
While Bangladesh's exporters have been successful in exporting nontraditional products to both developed and developing countries since the mid-1980s [Hossain and Rashid (1996)], they have the view that India has kept its markets closed for them through such non-tariff barriers for all differentiated products. Table 7 shows a list of India's non-trade barriers that have been prohibitive in Bangladesh's exports to India. Some of these non-tariff barriers are policy-induced and the others are institutional. It appears that there is a big gap between what is agreed in principle between the governments of Bangladesh and India at the political levels and is practised practised
expert or skilled because of long experience in a skill or field: the doctor answered with a practised smoothness
Adj. 1. by trade and custom officials at the ground level. One constant complaint of Bangladesh's exporters is that the Indian custom officials are notoriously slow in clearing any imports originating from Bangladesh. There is also lack of transparency (1) The quality of being able to see through a material. The terms transparency and translucency are often used synonymously; however, transparent would technically mean "seeing through clear glass," while translucent would mean "seeing through frosted glass." See alpha blending. and clarity as to the application of rules or barriers to imports from Bangladesh because much is left to the discretion of customs authorities [Rahman (1997)]. Let us report a number of representative comments on this issue:
... it is not the high nominal tariff rate that is blocking Bangladesh's exports to India, rather it is India's non-tariff barriers (local government's rules and regulations, officials rejection of goods at the entry point on flimsy grounds etc.) that has become the major obstacle to Bangladesh's exports. It becomes a matter of long battle at the entry point with the officials. Ministerial negotiations on tariff cuts are irrelevant here. K. U. Ahmed (1998:2) it was 'really impossible for Bangladesh to export anything unless Indian bureaucrats change their attitude. We have a lot of cosmetics, a lot many industrial products which are much better than Indian goods'. Golam Mostafa, President of the Bangladesh Frozen Foods Exporters Association, (The Daily Star, 27 July, 1998) ... the level playing field we are talking about is not level between India and Bangladesh ... irrespective of zero-tariff or concessional tariff facility, the access of Bangladeshi products to the Indian market would be difficult without resolution of non-tariff handicaps. We suggest that our foreign office negotiators and their advisers take a more incisive look into the matter beyond the surface of tariff equations. (The Independent Editorial, 27 November, 1997).
Some Indian officials may have retained their historically protectionist pro·tec·tion·ism
The advocacy, system, or theory of protecting domestic producers by impeding or limiting, as by tariffs or quotas, the importation of foreign goods and services. attitude that India should import only those products which it cannot produce domestically or when India is really required to import anything, it should import from countries other than its own neighbours. On both grounds, Bangladesh can be excluded as a source of India's imports. Someone not familiar with the rationale of intra-industry trade can question why India should import those products from Bangladesh which are available in India or could be produced in that country anyway or perceived to be of low quality. Such prejudice towards international trade has been expressed by none other than West Bengal's premier, Joyti Basu, who reportedly made the remark that Bangladesh cannot rely on 'hilsha fish and jamdani sari but should produce something which India needs'. (19)
Unable to achieve reciprocity reciprocity
In international trade, the granting of mutual concessions on tariffs, quotas, or other commercial restrictions. Reciprocity implies that these concessions are neither intended nor expected to be generalized to other countries with which the contracting parties from India, Bangladesh exporters have put their energies and resources to make inroads into other markets, especially in Europe and North America [Rahman (1997) and Ahmed (1998, 1998a)]. Ahmed (1998a) even argues that this is a sensible and positive development, as he does not see any prospect of Bangladesh's exports to the competitive and slow-growing economies of South Asian subcontinent sub·con·ti·nent
1. A large landmass, such as India, that is part of a continent but is considered either geographically or politically as an independent entity.
2. under the proposed South Asian Free Trade Arrangement (SAFTA SAFTA South Asian Free Trade Area
SAFTA Singapore-Australia Free Trade Agreement
SAFTA South American Free Trade Area
SAFTA Southern African Fair Trade Access
SAFTA South Australian French Teachers Association ) in 2001.
VII. POLITICAL ECONOMY OF BANGLADESH-INDIA TRADE RELATIONS
Bangladesh's economic and political relations with India remain complex and unstable unstable,
adj 1. not firm or fixed in one place; likely to move.
2. capable of undergoing spontaneous change. A nuclide in an unstable state is called
radioactive. An atom in an unstable state is called
excited. [Choudhury (1998)]. A rational line of reasoning Noun 1. line of reasoning - a course of reasoning aimed at demonstrating a truth or falsehood; the methodical process of logical reasoning; "I can't follow your line of reasoning"
logical argument, argumentation, argument, line is that, given its geographic proximity and socio-cultural links, Bangladesh should develop well-articulated and mature relations with its big neighbour. Bangladesh cannot do so by itself. India must respond positively to Bangladesh's gestures and be sensitive to its interests.
Having examined the economics of trade flows, we are now in a position to summarise Verb 1. summarise - be a summary of; "The abstract summarizes the main ideas in the paper"
sum, sum up, summarize
sum up, summarize, summarise, resume - give a summary (of); "he summed up his results"; "I will now summarize" the main points and draw policy implications from them within a political economy perspective.
(i) India's Deep Currency Devaluation Policy
Bangladesh's large and growing trade deficits with India appear to have been caused largely by India's deep currency devaluation rather than because of its technological maturity or higher stage of development. Both Bangladesh and India have a revealed comparative advantage in similar groups of products (supply conditions) and identical income and taste patterns (demand conditions). This suggests that the scope for inter-industry trade between them is limited. Whether it was intentional in·ten·tion·al
1. Done deliberately; intended: an intentional slight. See Synonyms at voluntary.
2. Having to do with intention. or not, India's deep currency devaluation has worked against Bangladesh's interests--economic, social and political. To be precise, it has reduced Bangladesh's foreign exchange reserves, created a black economy, encouraged capital flight, distorted domestic relative prices, and lowered income and employment. The size of the black economy is now so large that it undermines the government's monetary and fiscal policy [Kamaluddin (1998)]. The social and political impact of black money has also been enormous. A nexus has already developed between smugglers, extortionists, businessmen, bureaucrats and politicians. It has corrupted cor·rupt
1. Marked by immorality and perversion; depraved.
2. Venal; dishonest: a corrupt mayor.
3. the polity. With decline in the quality of governance Governance makes decisions that define expectations, grant power, or verify performance. It consists either of a separate process or of a specific part of management or leadership processes. Sometimes people set up a government to administer these processes and systems. , investor confidence has also slumped at a time when the continuous inflow in·flow
1. The act or process of flowing in or into: an inflow of water; an inflow of information.
2. of illegal imports has been forcing the closure of many small and medium-size enterprises, including those in the flag-bearing textile industry [Islam (1998)]. Some emerging labour-intensive, albeit standardised technology industries, such as consumer electronics, are also struggling to survive under imposition The printing of pages on a single sheet of paper in a particular order so that they come out in the correct sequence when cut and folded. of heavy taxes on such products and their raw materials. On the fiscal side. the introduction of myriad Myriad is a classical Greek name for the number 104 = 10 000. In modern English the word refers to an unspecified large quantity.
The term myriad is a progression in the commonly used system of describing numbers using tens and hundreds. of taxes has been to fill in the shortfalls of government's tariff revenues created by large scale smuggling from India that replaced taxable imports from other countries.
(ii) India's Dumping of Low Quality Products Driving Out Good Substitutes
As emphasised earlier, in Bangladesh's markets, India has gained an artificial competitive advantage in its products over other suppliers through deep currency devaluation. Most of its products are of low quality and not globally competitive. (20) Many suggest that Bangladesh has basically become a dumping ground of India's otherwise unexportable products. For example, it was reported in the Daily Star (9 July 1998) that the prices of some of the Indian products are even lower than the prices of raw materials used to manufacture them, indicating the possibility of dumping. There are other reasons why the Indian products are cheaper than their substitutes. As indicated earlier, most of India's products enter into Bangladesh's markets illegally without paying any import tariffs, development surcharge An overcharge or additional cost.
A surcharge is an added liability imposed on something that is already due, such as a tax on tax. It also refers to the penalty a court can impose on a fiduciary for breaching a duty. , sales tax/value added tax, advance income tax, and so on. Even most legal imports from India are subject to very low or zero rates of tariffs. Therefore the Indian products are attractive to those poor consumers who are either less willing or cannot afford to pay high prices for quality. Along with low-quality products, there are of course some good-quality, high-priced products from India. Due to restrictions on imports from India introduced in the 1950s and 1960s, some of India's products, irrespective of irrespective of
Without consideration of; regardless of.
preposition despite their quality, carried scarcity premiums. That snobbery among other non-economic factors feeds on. Many rich and middle income consumers patronise Verb 1. patronise - do one's shopping at; do business with; be a customer or client of
buy at, frequent, shop at, patronize, shop, sponsor
back up, support - give moral or psychological support, aid, or courage to; "She supported him during the illness"; Indian products for such reasons.
Given a wide range of products and the different groups of consumers, it is not easy to determine the net consumer welfare from such products. Along with dumped cheap products, many fake, drugs and narcotics Drugs are articles that are intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in humans or animals, and any articles other than food, water, or oxygen that are intended to affect the mental or body function of humans or animals. enter into Bangladesh's markets. As Ahmed (1998a) remarks, the latter are bads, not goods and a travesty of welfare improvement through free trade! The main concern arises from the impact of low quality imports of intermediate and capital goods on the production of goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. . As such imports replace better quality substitutes that may have a negative impact on the quality and hence reputation of Bangladesh's products made for export markets in developed countries. Some critics go to the extent of suggesting that India, by dumping its low quality products (both consumer and capital), tends to destroy Bangladesh's emerging export potential in those products where both countries either compete or expect to compete in the future. Although this may at best be a wild guess. But for any success of export-oriented strategy of development, a small open economy like Bangladesh cannot afford to sacrifice quality of its products whether they are sold domestically or internationally. The quality of consumer goods, especially health-related products, should also not be ignored. (21)
How is it possible for India to dump low-quality products into Bangladesh's markets? For one thing, there are hundreds of ghost exporters who supply (legally and illegally) hundreds of products with exotic or fake brand names into Bangladesh's markets and who have joined in the rush to make quick profits. These backyard products are sold without any quality control on either India's or Bangladesh's side. Whatever regulations exist on paper are ignored in practice.
As Rashid (1988) has shown with historical evidence, product quality has a defined tendency to deteriorate de·te·ri·o·rate
1. To grow worse in function or condition.
2. To weaken or disintegrate. in contestable markets [Baumol (1982)] with many small producers, free entry and costless exit. Heal (1976) points out that the danger to quality comes primarily from "upstarts" and "fly-by-nights" who are in the market only for a quick gain. When consumers have either limited information on suppliers or difficulties in identifying good products from bad and there is no institution to ensure that buyers and sellers would frequently meet each other, it is likely that Gresham's Law--that bad products drive out good--would prevail in the market. Akerlof (1970) has shown this in his classic model of "lemons". He further points out that the cost of dishonesty dis·hon·es·ty
n. pl. dis·hon·es·ties
1. Lack of honesty or integrity; improbity.
2. A dishonest act or statement.
Noun 1. in the business of "lemons" lies not only in the amount by which the purchaser is cheated, but it also includes the loss incurred from driving legitimate business out of existence.
(iii) Agricultural Imports and Diversification Diversification
A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance.
Diversification is possibly the greatest way to reduce the risk.
More than 70 percent of Bangladesh's illegal imports from India are on account of livestock, fish and poultry-related products, agri-products, and processed food and tobacco. These imports have an adverse impact on agricultural development and modernisation in Bangladesh. Bangladesh agriculture is dominated by food crops and a sustainable agricultural growth needs diversification in favour of non-crop products, for example, livestock, fisheries and poultry [Abdullah and Shahabuddin (1997)]. To the extent that the production of such products has both internal and external economies of scale, a large-scale illegal importation of them would slow down or even halt the process of agricultural diversification. To rectify rec·ti·fy
1. To set right; correct.
2. To refine or purify, especially by distillation. the situation, the government may introduce agricultural development measures, including agricultural production subsidy subsidy, financial assistance granted by a government or philanthropic foundation to a person or association for the purpose of promoting an enterprise considered beneficial to the public welfare. , research and extension services and infrastructural development, in order to raise farm productivity.
Bangladesh is still an agricultural economy and the agricultural sector has a major role to play in its economic transformation. The agri-products of India, such as cattle, milk, edible oil, and spices, that enter into Bangladesh are not indispensable in the sense that they cannot be produced domestically without high adjustment costs [Bochove (1982)]. There are large social and economic gains in promoting such products as part of agricultural modernisation and diversification. If it is necessary the government should encourage their production by providing some explicit subsidies for a well-defined transition period. Rather than following such a strategic agricultural development, the political leaders even play politics with cattle smuggling, for example. In general, illegal cattle imports from India are allowed to keep the city consumers happy, especially when political agitation agitation /ag·i·ta·tion/ (aj?i-ta´shun) excessive, purposeless cognitive and motor activity or restlessness, usually associated with a state of tension or anxiety. Called also psychomotor a. heats up! When government is not willing to provide agricultural subsidies agricultural subsidies, financial assistance to farmers through government-sponsored price-support programs. Beginning in the 1930s most industrialized countries developed agricultural price-support policies to reduce the volatility of prices for farm products and to , a competitive exchange rate policy may be adequate to stop most illegal agri-imports from India. This will increase the domestic production of non-crop agricultural products when the relative demand shifts to such products with the rise in income levels.
(iv) Smuggling and Foreign Investment
Despite persistent efforts and encouragement since the mid-1980s, Bangladesh has attracted only a little foreign investment as compared with other South Asian countries [Bangladesh (1997)]. There are many factors that retard foreign investment. Massive illegal imports from India is one of them. For example, foreign investors in either primary or manufacturing sectors take into account potential competition from illegal imports from India. As India effectively maintains its tariff and non-tariff barriers to exports from Bangladesh when Bangladesh's own markets remain open, it is India, not Bangladesh, that would continue to receive foreign direct investment. Foreign portfolio investors are also reluctant to invest in Bangladesh's financial assets Financial assets
Claims on real assets. with long holding periods because of the large foreign exchange risk arising from artificially overvalued Overvalued
A stock whose current price is not justified by the earnings outlook or price/earnings (P/E) ratio and thus, expected to drop in price. Overvaluation may result from an emotional buying spurt, which inflates the market price of the stock or from a deterioration in a currency, kept as a means to control inflation.
(v) Economic Overdependence and Politics
While Bangladesh's trade relations with rich countries, such as Japan and the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , are primarily commercial, its trade relations with India have economic and political implications. Being a small, vulnerable country, there is an emerging view that Bangladesh should not become heavily dependent on India either economically or politically because India's economic and political interests are not necessarily in harmony with those of Bangladesh. The polity in Bangladesh is strongly divided on Bangladesh's current and future relations with India. Although the present ruling Awami League Awami League, political organization in Pakistan and Bangladesh. It was founded in 1949 as an opposition party in Pakistan and had a moderately socialist ideology. maintains a good relationship with India, the major opposition parties, such as the Bangladesh Nationalist Party Bangladesh Nationalist Party (Bengali: বাংলাদেশ জাতীয়তাবাদী দল Bangladesh Jatiotabadi Dôl (BNP BNP B-type natriuretic peptide, brain natriuretic peptide Physiology A 32-residue peptide hormone produced predominantly in the ventricles, secreted in response to fluid overload–eg, CHF. See Atrial natriuretic peptide. ) and the Jammat-i-Islami, remain suspicious about India's long-term political motives. Its economic structure being not fundamentally different from that of India, Bangladesh has scant scant
adj. scant·er, scant·est
1. Barely sufficient: paid scant attention to the lecture.
2. Falling short of a specific measure: a scant cup of sugar. need to give India the kind of trade benefits that economically advanced countries, such as Japan, USA, South Korea, and European Union, may like to have from Bangladesh on the basis of their comparative advantage in capital and technology-intensive products. Besides technological spillovers from such products of industrialised Adj. 1. industrialised - made industrial; converted to industrialism; "industrialized areas"
industrial - having highly developed industries; "the industrial revolution"; "an industrial nation" countries, Bangladesh can gain enormously if it develops extensive trade (and other economic) relations with those countries. This follows the argument of the new endogenous growth theory In economics, endogenous growth theory or new growth theory was developed in the 1980s as a response to criticism of the neo-classical growth model. that a developing economy open to trade with industrialised countries can derive a larger marginal benefit on its productivity from a marginal increase in imports.
(vi) Economies of Scale and Intra-industry Trade
It is not suggested that Bangladesh should not engage in trade with India. What is emphasised is that as Bangladesh and India produce similar or substitutable products, it is desirable that they expand trade in differentiated products for mutual benefit. But Bangladesh has so far been able to export only a few specialised commodities to India. For lack of access to India's market, Bangladesh's exporters have not specialised in many differentiated products for Indian consumers. This shows that despite the repeated official pronouncement of the Indian government at regional forums, Bangladesh has had limited or no economic cooperation from India in its efforts toward regional economic integration. The present popular resentment Resentment is an emotion of anger felt as a result of a real or imagined wrong done. Etymologically from "ressentir", French re-, intensive prefix, and sentir "to feel"; from the latin "sentire". The English word has become synonymous with anger and bitterness. against India's trade domination domination
the relationship between animals and humans in which little consideration is given to the rights of the animals. The prevailing sentiment is one of proprietary domination. is not necessarily because of Bangladesh's large imports from India. It is primarily due to India's unwillingness to allow Bangladesh's products to enter into its markets. If India intends to maintain trade relations with Bangladesh, it must open up its markets for Bangladesh's products. It should accept the fact that if Bangladesh can produce and export products worth about US$ 4 billion to the rest of the world, it can produce goods to meet some demand of the Indian consumers. Even if Bangladesh's products are of low quality India certainly has a few hundred million poor consumers who would like to purchase them if they find such products price competitive.
In essence, intra-industry trade, not inter-industry specialisation, should be the rule of the game between Bangladesh and India. It is to be recognised that in an open deregulated environment, the large size of India's economy does not necessarily give it an advantage of external economics of scale for all the differentiated products. The smaller economies, such as Bangladesh's, can engage in foreign trade, reap the external economies of scale and even undersell the large economies [Salvatore (1995)]. This is one of the implications of the intra-industry trade models developed by Helpman (1981), Krugman (1980) and others. Looking from this viewpoint, Sobhan's justification that Bangladesh's large and growing trade deficits with India are implicit under a free-trade regime. Since the pattern of trade in the presence of external economies of scale (static and dynamic) remains indeterminate That which is uncertain or not particularly designated.
INDETERMINATE. That which is uncertain or not particularly designated; as, if I sell you one hundred bushels of wheat, without stating what wheat. 1 Bouv. Inst. n. 950. , Bangladesh would have reason not to accept the present state of its trade with India as a fair accompli. In fact, when multiple equilibria arise under increasing returns, identical economies can have trade, and indeed beneficial trade. Reversed trade patterns are also demonstrable de·mon·stra·ble
1. Capable of being demonstrated or proved: demonstrable truths.
2. Obvious or apparent: demonstrable lies. as possible multiple equilibria states [Kemp n. 1. Coarse, rough hair in wool or fur, injuring its quality. (1964) and Bhagwati (1991)].
This paper has examined aspects of Bangladesh's large and growing trade deficits with India. Although bilateral trade deficits do not necessarily constitute an economic problem, it needs examination whether such deficits are natural or a problem that requires remedial REMEDIAL. That which affords a remedy; as, a remedial statute, or one which is made to supply some defects or abridge some superfluities of the common law. 1 131. Com. 86. The term remedial statute is also applied to those acts which give a new remedy. Esp. Pen. Act. 1. measures. A one-way trade flow between two countries at the same stage of development cannot be described as "natural". It was India's deep currency devaluation rather than advanced technology or competitive advantage that opened the floodgates for Indian products into Bangladesh's markets. Through subsidies and interventions. India has artificially created a comparative advantage over Bangladesh in differentiated products. India has also kept its markets closed for Bangladesh's products. In short, it would appear that Bangladesh's trade with India is neither "fair nor competitive".
What should the government of Bangladesh do? It can devalue the taka to remove India's competitive advantage, prevent wholesale smuggling, and enter into negotiations with India to reduce non-tariff barriers for its products. Alternatives to devaluation like country-specific high tariffs (22) will not only slow liberalisation but will also be ineffective in curbing corruption. Why maintain high tariffs on products that enter into Bangladesh's markets illegally? Such tariffs neither raise government revenues nor protect domestic industries [Rahman and Razzaq (1998)]. What about the sealing of borders with India to stop wholesale smuggling? The members of the Bangladesh Rifles Bangladesh Rifles is a paramilitary force in Bangladesh. It is mainly associated with guarding the borders of the country. Thus, this force is known as "The Vigilant Sentinels of Our National Frontier". (BDR BDR Border
BDR Bangladesh Rifles (military forces in Bangladesh)
BDR Backup Designated Router (networking)
BDR Bombardier (artillery rank)
BDR Backup Disaster Recovery ), who are supposed to stop smuggling, are allegedly themselves involved in the illegal trade [Rahman and Razzaq (1998)]. The removal of India's non-tariff barriers to Bangladesh's exports through persuasion PERSUASION. The act of influencing by expostulation or request. While the persuasion is confined within those limits which leave the mind free, it may be used to induce another to make his will, or even to make it in his own favor; but if such persuasion should so far operate on the mind or diplomacy diplomacy
Art of conducting relationships for gain without conflict. It is the chief instrument of foreign policy. Its methods include secret negotiation by accredited envoys (though political leaders also negotiate) and international agreements and laws. is perhaps wishful thinking wishful thinking Psychology Dereitic thought that a thing or event should have a specified outcome . (23) Raising the issue before the World Trade Organisation (24) is an option, Bangladesh has not so far considered.
This explains why a practical solution to any large trade deficits with India should rely primarily on eliminating economic incentives for the imbalance. This can be effectively done if Bangladesh's taka is devalued to the extent that it neutralises India's advantage against Bangladesh's products. Next, the government may follow a flexible exchange rate policy in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.
As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with either a real targets approach or a nominal anchor approach [Corden (1991)]. The exchange rate policy of India should also be carefully and frequently evaluated to determine its impact on Bangladesh's trade flows. The simple fact is that Bangladesh cannot remain indifferent INDIFFERENT. To have no bias nor partiality. 7 Conn. 229. A juror, an arbitrator, and a witness, ought to be indifferent, and when they are not so, they may be challenged. See 9 Conn. 42. to the conduct of India's exchange rate policy. As Khan (1995) rightly points out, no amount of tariff and non-tariff barriers would have succeeded in preventing an improvement in Bangladesh's balance of trade with India if the relative prices were right. He further adds that India's aggressive currency devaluation is an essential part of its strategy to outcompete its actual and potential competitors, including Bangladesh. (25)
Would India introduce a tit-for-tat devaluation strategy or allow Bangladesh to regain its relative competitiveness? It is understandable that India is unlikely to match any large devaluation of Bangladesh's taka as it has already made a substantial devaluation of its currency. In fact, facing a situation of competitive currency devaluation, India may find it more attractive to open up its markets for Bangladesh's products as an inducement Inducement
incited brother, Orestes, to kill their mother and her lover. [Gk. Myth.: Zimmerman, 92; Gk. Lit.: Electra, Orestes]
exhorts Judah to stand fast against Assyrians. [O.T. to stop Bangladesh from continuing with devaluing its currency. Having realised the potential loss of Bangladesh's markets, Indian exporters may pressure their government to open up the market for Bangladesh's products. The simple fact is that Bangladesh has now become too good a market for India to lose.
The above is no doubt a hypothetical Hypothetical is an adjective, meaning of or pertaining to a hypothesis. See:
Policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other handicaps placed on imports. and raise questions about the legitimacy LEGITIMACY. The state of being born in wedlock; that is, in a lawful manner.
2. Marriage is considered by all civilized nations as the only source of legitimacy; the qualities of husband and wife must be possessed by the parents in order to make the offspring of freer trade. (26) Along with it, the danger will come from the political side. India has influence in Bangladesh. There is little doubt that it would continue its efforts to maintain and enhance its economic and political interests. (27) Since nobody in Bangladesh wants it, it would be a national tragedy if the economic independence of Bangladesh becomes only as effective as that of Nepal or Bhutan.
STATISTICAL TABLES Appendix Table A.1 Bangladesh-India Bilateral Trade Deficits (Million Taka), 1974-1996 Period Trade Average/ Deficits Fiscal (% of GDP) Year Exports Imports Deficits India 1971-72 n.a. n.a. n.a. n.a. 1972-73 n.a. n.a. n.a. n.a. 1974-75 65.1 542.5 -477.4 -0.49 1976-81 95.5 1146.1 -1050.6 -0.69 1982-85 401.7 1818.1 -2219.8 -0.41 1986-90 103.0 4648.5 -4545.5 -0.74 1990-91 1095.3 9444.9 -8349.6 -0.83 1991-92 78.9 8823.7 -8744.8 -0.47 1992-93 382.5 13384.7 -13002.2 -1.05 1993-94 669.7 16579.5 -15909.8 -1.54 1994-95 1811.6 27679.4 -25868.1 -2.2 1995-96 2964.8 44926.0 -41961.2 -3.24 Real Exchange Rate of Taka Against Indian Rupee US Dollar Period Average/ ([arrow up]/[arrow down] Fiscal = Depreciation/ Year Total Appreciation) 1971-72 n.a. 2.52 27.61 1972-73 n.a. 1.98 20.09 1974-75 -5.7 1.86 17.66 1976-81 -10.3 2.33 26.63 1982-85 -12.1 2.55 35.64 1986-90 -9.6 2.25 34.63 1990-91 -7.1 1.71 35.57 1991-92 -6.5 1.71 35.48 1992-93 -7.5 1.57 39.13 1993-94 -7.1 1.65 39.37 1994-95 -6.8 1.67 38.34 1995-96 -8.5 1.21 39.87 Sources: Authors' computations/compilations based on the following sources: BBS (Several Years) Statistical Yearbook of Bangladesh. Dhaka: BBS. BBS (1993) Twenty Years of National Accounting of Bangladesh. Dhaka: BBS. BB (Various Issues) Economic Trends. Dhaka: Bangladesh Bank. IMF (Various Years) IFS Yearbook. Washington, D.C.: IMF. Rahman (1997). Bangladesh (1996) Bangladesh Economic Survey. Dhaka: Ministry of Finance. Note: * The real exchange rate is defined as the nominal exchange rate of the taka with the relevant foreign currency (that is, the Indian rupee or the US dollar) multiplied by the ratio of foreign consumer price index to the domestic price index with 1990 = 1 as base n.a. = not available. Appendix Table A.2 Structural Characteristics of the Economies of Bangladesh and its Trading Partners Bangladesh India GNP Per Capita ($US 1993) 220 300 Average Annual Growth of Real GNP Per Capita (%) (1980-1993) 2.1 3.0 PPP Estimates of GNP Per Capita (1993) (USA = 100) 5.2 4.9 Percentage Share of Income Lowest 20 Percent 9.5 (1989) 8.8 (1990) Life Expectancy at Birth (Years) (1993) 56 61 Total Fertility Rate (1993) 4.3 3.7 Population Growth Rate (%) (1980-1993) 2.1 2.0 Infant Mortality Rate (Per 1000 Live Births) (1993) 106 80 Adult Illiteracy (Total) (%) (1990) 65 52 Percentage of Age Group Enrolled in Education (1992) Primary 77 102 Secondary 19 44 Tertiary 4 n. a. Urban Population (Percent of Total Population, 1993) 17 26 Distribution of Production (1993) Agriculture 30 31 Industry 18 27 Services 52 41 Distribution of Manufacturing Value Added (%)(1992 or Close) Food, Beverages, and Tobacco 24 12 Textiles and Clothing 39 12 Machinery, Transport Equipment 7 26 Chemicals 17 17 Others 15 3 Distribution of the Work Force (%) 1989 1991 Agriculture 65.5 63.2 Industry 15.5 14.2 Services 19.6 22.6 Percentage Share of Merchandise Imports (1993) Food 15 4 Fuels 14 30 Other Primary Commodities 30 10 Machinery and Transport Equipment 13 14 Other Manufactures 28 42 Percentage Share of Merchandise Exports (1993) Fuels, Minerals, Metals 0 7 Other Primary Commodities 18 18 Machinery and Transport Equipment 0 7 Other Manufactures 81 68 Textile Fibres, Textiles, and Clothing 78 30 Average Annual Rate of Inflation (%) (1980-1993) 8.6 8.7 China Thailand GNP Per Capita ($US 1993) 490 2110 Average Annual Growth of Real GNP Per Capita (%) (1980-1993) 8.2 6.4 PPP Estimates of GNP Per Capita (1993) (USA = 100) 9.4 25.3 Percentage Share of Income Lowest 20 Percent 6.4 (1990) 6.1 (1988) Life Expectancy at Birth (Years) (1993) 69 69 Total Fertility Rate (1993) 2.0 2.1 Population Growth Rate (%) (1980-1993) 1.4 1.7 Infant Mortality Rate (Per 1000 Live Births) (1993) 30 36 Adult Illiteracy (Total) (%) (1990) 27 7 Percentage of Age Group Enrolled in Education (1992) Primary 121 97 Secondary 51 33 Tertiary 2 19 Urban Population (Percent of Total Population, 1993) 29 19 Distribution of Production (1993) Agriculture 19 10 Industry 48 39 Services 33 51 Distribution of Manufacturing Value Added (%)(1992 or Close) Food, Beverages, and Tobacco 13 16 Textiles and Clothing 13 16 Machinery, Transport Equipment 27 40 Chemicals 12 5 Others 35 23 Distribution of the Work Force (%) 1993 1989 Agriculture 61.0 66.3 Industry 18.0 11.9 Services 21.0 21.8 Percentage Share of Merchandise Imports (1993) Food 3 5 Fuels 6 8 Other Primary Commodities 7 7 Machinery and Transport Equipment 42 45 Other Manufactures 43 36 Percentage Share of Merchandise Exports (1993) Fuels, Minerals, Metals 6 2 Other Primary Commodities 13 26 Machinery and Transport Equipment 16 28 Other Manufactures 65 45 Textile Fibres, Textiles, and Clothing 31 1S Average Annual Rate of Inflation (%) (1980-1993) 7.0 4.3 Malaysia Indonesia GNP Per Capita ($US 1993) 3140 740 Average Annual Growth of Real GNP Per Capita (%) (1980-1993) 3.5 4.2 PPP Estimates of GNP Per Capita (1993) (USA = 100) 32.1 12.7 Percentage Share of Income Lowest 20 Percent 4.6 (1989) 8.7 (1990) Life Expectancy at Birth (Years) (1993) 71 63 Total Fertility Rate (1993) 3.5 2.8 Population Growth Rate (%) (1980-1993) 2.5 1.7 Infant Mortality Rate (Per 1000 Live Births) (1993) 13 11 Adult Illiteracy (Total) (%) (1990) 22 23 Percentage of Age Group Enrolled in Education (1992) Primary 93 115 Secondary 58 38 Tertiary 7 10 Urban Population (Percent of Total Population, 1993) 52 33 Distribution of Production (1993) Agriculture 16 19 Industry 44 39 Services 40 42 Distribution of Manufacturing Value Added (%)(1992 or Close) Food, Beverages, and Tobacco 10 23 Textiles and Clothing 6 16 Machinery, Transport Equipment 34 14 Chemicals 11 7 Others 39 40 Distribution of the Work Force (%) 1988 1993 Agriculture 30.6 50.4 Industry 22.6 15.8 Services 46.7 33.8 Percentage Share of Merchandise Imports (1993) Food 7 7 Fuels 4 8 Other Primary Commodities 4 9 Machinery and Transport Equipment 54 42 Other Manufactures 30 34 Percentage Share of Merchandise Exports (1993) Fuels, Minerals, Metals 14 32 Other Primary Commodities 21 15 Machinery and Transport Equipment 41 5 Other Manufactures 24 48 Textile Fibres, Textiles, and Clothing 6 17 Average Annual Rate of Inflation (%) (1980-1993) 2.2 8.5 Korea. S. Japan GNP Per Capita ($US 1993) 7660 31490 Average Annual Growth of Real GNP Per Capita (%) (1980-1993) 8.2 3.4 PPP Estimates of GNP Per Capita (1993) (USA = 100) 38.9 84.3 Percentage Share of Income Lowest 20 Percent 7.4 (1988) 8.7 (1979) Life Expectancy at Birth (Years) (1993) 71 80 Total Fertility Rate (1993) 1.7 1.5 Population Growth Rate (%) (1980-1993) 1.1 0.5 Infant Mortality Rate (Per 1000 Live Births) (1993) 11 4 Adult Illiteracy (Total) (%) (1990) <5 <5 Percentage of Age Group Enrolled in Education (1992) Primary Secondary 105 102 Tertiary 90 n.a. Urban Population (Percent of Total Population, 1993) 42 32 Distribution of Production (1993) Agriculture 78 77 Industry 7 2 Services 43 41 Distribution of Manufacturing Value Added (%)(1992 or Close) 50 57 Food, Beverages, and Tobacco 26 23 Textiles and Clothing 17 4 Machinery, Transport Equipment 12 23 Chemicals 9 12 Others 35 38 Distribution of the Work Force (%) 1991 1991 Agriculture 16.7 6.7 Industry 35.6 35.5 Services 47.7 58.8 Percentage Share of Merchandise Imports (1993) Food 6 13 Fuels 18 6 Other Primary Commodities 13 5 Machinery and Transport Equipment 34 29 Other Manufactures 29 46 Percentage Share of Merchandise Exports (1993) Fuels, Minerals, Metals 3 2 Other Primary Commodities 4 1 Machinery and Transport Equipment 43 68 Other Manufactures 51 29 Textile Fibres, Textiles, and Clothing 19 2 Average Annual Rate of Inflation (%) (1980-1993) 6.3 1.5 USA UK GNP Per Capita ($US 1993) 24740 18060 Average Annual Growth of Real GNP Per Capita (%) (1980-1993) 1.7 2.3 PPP Estimates of GNP Per Capita (1993) (USA = 100) 100.0 69.6 Percentage Share of Income Lowest 20 Percent 4.7 (1985) 4.6 (1988) Life Expectancy at Birth (Years) (1993) 76 76 Total Fertility Rate (1993) 2.1 1.8 Population Growth Rate (%) (1980-1993) 1.0 0.2 Infant Mortality Rate (Per 1000 Live Births) (1993) 9 7 Adult Illiteracy (Total) (%) (1990) <5 <5 Percentage of Age Group Enrolled in Education (1992) Primary 104 104 Secondary n.a. 86 Tertiary 76 28 Urban Population (Percent of Total Population, 1993) 76 89 Distribution of Production (1993) Agriculture 2 2 Industry 29 33 Services 69 65 Distribution of Manufacturing Value Added (%)(1992 or Close) Food, Beverages, and Tobacco 13 15 Textiles and Clothing 5 5 Machinery, Transport Equipment 31 30 Chemicals 12 13 Others 38 37 Distribution of the Work Force (%) 1991 1990 Agriculture 2.9 2.1 Industry 25.8 28.7 Services 71.3 69.3 Percentage Share of Merchandise Imports (1993) Food 5 11 Fuels 10 5 Other Primary Commodities 4 6 Machinery and Transport Equipment 43 39 Other Manufactures 38 39 Percentage Share of Merchandise Exports (1993) Fuels, Minerals, Metals 4 10 Other Primary Commodities 14 9 Machinery and Transport Equipment 49 41 Other Manufactures 33 40 Textile Fibres, Textiles, and Clothing 3 5 Average Annual Rate of Inflation (%) (1980-1993) 3.8 5.6 Sources: Authors' compilation based on World Bank, World Development Report. 1995 and ADB, Asian Development Outlook. 1995 and 1996. Appendix Table A.3 Time Series Properties of Variables Used in the Import Demand Function Period Series DF ADF(1) 1975-1995 ln[[E.sup.b](CPI.sup.i]/ [CPI.sup.b])] -1.50 -2.89 1976-1995 ln [[rim.sup.bi]] -1.88 -1.48 1975-1995 ln RGDP -3.67 -3.18 1975-1995 [DELTA]ln[[E.sup.b] ([CPI.sup.i]/[CPI. sup.b])] -5.19 1976-1995 [DELTA]ln[[rim.sup.bi]] -5.07 1975-1995 [DELTA]ln RGDP -8.65 Source: IMF, IFS Yearbook 1995 plus monthly issues of later dates. Notes: + DF=Dickey-Fuller test, ADF = Augmented Dickey-Fuller test. The testing procedure was discussed in detail in Hossain (1999). | a,b,c = represents significance at the 1, 5, and 10 percent level. Appendix Table A.4 Bangladesh: Intra-Industry Trade Index (T) (+) SITC Commodities 1980 1990 1993 0 Food and Live Animals 0.46 0.63 0.86 1 Meat and Preparations 0 (a) None None 2 Dairy Products, Birds' Eggs 0 (b) 0 (b) 0 (b) 22 Milk and Cream 0 (b) 0 (b) 0 (b) 3 Fish and Preparations 0 (a) 0 (a) 0 (a) 4 Cereals and Preparations 0.26 0 (b) 0 (b) 5 Vegetables and Fruit 0.18 0.18 0.37 6 Sugar and Preparations, Honey 0 (b) 0 (b) 0 (b) 7 Coffee, Tea, Cocoa, Spices etc. 0.18 0.52 0.77 1 Beverages and Tobacco 0 (b) 0 (b) 0 (b) 2 Crude Materials, Excluding Fuels 0.91 0.59 0.46 22 Oil Seeds, Oleaginous Fruit 0 (b) 0 (b) 0 (b) 24 Cork and Wood 0 (b) 0 (b) 0 (b) 251 Pulp and Waste Paper 0 (b) 0 (b) 0 (b) 26 Textile Fibres and Waste 0.86 0.85 0.74 264 Jute, Other Fibres 0 (a) 0 (a) 0 (a) 27 Crude Fertiliser, Minerals 0 (b) 0 (b) 0 (b) 28 Metalliferous Ores, Scrap 0 (b) 0 (b) 0 (b) 29 Crude Animal, Vegetable Materials 0 (a) None None 3 Mineral Fuels etc. 0 (b) 0.07 0.09 33 Petroleum and Products 0.01 0.07 0.09 4 Animal, Vegetable Oil, Fat 0 (b) 0 (b) 0 (b) 5 Chemical, Related Products 0.08 0.12 0.28 51 Organic Chemicals 0.37 0 (b) 0 (b) 52 Inorganic Chemicals 0 (b) 0 (b) 0 (b) 53 Dyes, Tanning, Colour Productions 0 (b) 0 (b) 0 (b) 541 Medicine, Pharmaceutical Products 0 (b) 0 (b) 0 (b) 562 Fertilisers, Manufacture 0.06 0.47 0.99 58 Plastic Materials etc. 0 (b) 0 (b) 0 (b) 59 Chemical Materials 0 (b) 0 (b) 0 (b) 6 Basic Manufactures 0.90 0.72 0.57 61 Leather, Dressed Fur, etc. 0 (a) 0 (a) 0 (a) 62 Rubber Manufactures 0 (b) 0 (b) 0 (b) 64 Paper, Paperboard and Manufacturing 0.64 0 (b) 0 (b) 65 Textile Yarn, Fabrics, etc. 0.37 0.86 0.66 66 Nonmetal Mineral Manufactures 0 (b) 0 (b) 0 (b) 661 Lime, Cement, Building Products 0 (b) 0 (b) 0 (b) 67 Iron and Steel 0 (b) 0 (b) 0 (b) 68 Non-ferrous Metals 0 (b) 0 (b) 0 (b) 69 Metal Manufactures 0 (b) 0 (b) 0 (b) 7 Machines, Transport Equipment 0.04 0.04 0.07 71 Power Generating Equipment 0 (b) 0 (b) 0 (b) 72 Machines for Special Industries 0.08 0.07 0.08 73 Metalworking Machinery 0 (b) 0.37 0.01 74 General Industrial Machinery 0.10 0.01 0.28 75 Office Machines None 0 (b) 0 (b) 76 Telecommunications Equipment 0 (b) 0 (b) 0 (b) 77 Electric Machinery 0 (b) 0 (b) 0 (b) 78 Road Vehicles 0 (b) 0 (b) 0 (b) 79 Other Transport Equipment 0.01 0 (b) 0 (b) 8 Miscellaneous Manufactured Goods 0.13 0.32 0.22 84 Clothing and Accessories 0 (a) 0.04 0.01 87 Precision Instruments 0 (b) 0 (b) 0 (b) 88 Photoequipment, Optical Goods 0 (b) 0 (b) 0 (b) 89 Miscellaneous Manufactured Goods 0.13 0.07 0.15 9 Goods not Classified 0.56 None None by Kind SITC Commodities Comment 0 Food and Live Animals Intra-industry trade has been rising following trade liberalisation 1 Meat and Preparations Trade ceased following trade liberalisation 2 Dairy Products, Birds' Eggs Only imports 22 Milk and Cream Only imports 3 Fish and Preparations Only exports 4 Cereals and Preparations Intra-industry trade has declined following trade liberalisation; now only imports 5 Vegetables and Fruit Intra-industry trade has been rising following trade liberalisation 6 Sugar and Preparations, Honey Only imports 7 Coffee, Tea, Cocoa, Intra-industry trade has Spices etc. been rising following trade liberalisation 1 Beverages and Tobacco Only imports 2 Crude Materials, Intra-industry trade Excluding Fuels has declined following trade liberalisation 22 Oil Seeds, Oleaginous Fruit Only imports 24 Cork and Wood Only imports 251 Pulp and Waste Paper Only imports 26 Textile Fibres and Waste Intra-industry trade has declined following trade liberalisation 264 Jute, Other Fibres Only exports 27 Crude Fertiliser, Minerals Only imports 28 Metalliferous Ores, Scrap Only imports 29 Crude Animal, Vegetable Trade ceased following Materials trade liberalisation 3 Mineral Fuels etc. Intra-industry trade has been rising following trade liberalisation 33 Petroleum and Products Intra-industry trade has been rising following trade liberalisation 4 Animal, Vegetable Oil, Fat Only imports 5 Chemical, Related Intra-industry trade has Products been rising following trade liberalisation 51 Organic Chemicals Intra-industry trade has declined following trade liberalisation; now only imports 52 Inorganic Chemicals Only imports 53 Dyes, Tanning, Colour Productions Only imports 541 Medicine, Pharmaceutical Products Only imports 562 Fertilisers, Manufacture Intra-industry trade has risen to the maximum following trade liberalisation 58 Plastic Materials etc. Only imports 59 Chemical Materials Only imports 6 Basic Manufactures Intra-industry trade has declined following trade liberalisation 61 Leather, Dressed Fur, etc. Only exports 62 Rubber Manufactures Only imports 64 Paper, Paperboard and Intra-industry trade Manufacturing has declined following trade liberalisation: now only imports 65 Textile Yarn, Fabrics, Intra-industry trade etc. shows a falling trend after reaching high 66 Nonmetal Mineral Manufactures Only imports 661 Lime, Cement, Building Products Only imports 67 Iron and Steel Only imports 68 Non-ferrous Metals Only imports 69 Metal Manufactures Only imports 7 Machines, Transport Intra-industry trade Equipment has been rising following trade liberalisation 71 Power Generating Equipment Only imports 72 Machines for Special Did not change the Industries extent of intra-industry trade following trade liberalisation 73 Metalworking Machinery Intra-industry trade increased after trade liberalisation, but has fallen sharply; now only imports 74 General Industrial Intra-industry trade has Machinery increased following trade liberalisation 75 Office Machines Only imports 76 Telecommunications Equipment Only imports 77 Electric Machinery Only imports 78 Road Vehicles Only imports 79 Other Transport Equipment Only imports 8 Miscellaneous Intra-industry trade Manufactured Goods increased after trade liberalisation, but has fallen recently 84 Clothing and Accessories Intra-industry trade did not increase much following trade liberalisation: mainly exports 87 Precision Instruments Only imports 88 Photoequipment, Optical Goods Only imports 89 Miscellaneous Intra-industry trade Manufactured Goods has increased following trade liberalisation 9 Goods not Classified by Kind Source: Authors' calculation based on UN International Trade Statistics Yearbook (Various Years). Notes. (+) The intra-industry trade Index (T)--sometimes called the Grubel-Lloyd index--is calculated as: T = 1 - [[absolute value of X-M]]/(X+M)] where X and M represent, respectively the value of exports and imports of a particular commodity and the vertical bars in the numerator denotes the absolute value. The value of T ranges from 0 to 1, T = 0 when a country only exports or only imports the commodity in question, that is, there is no intra-industry trade. On the other hand, if the exports and import equal, T = 1, that is, the intra-industry trade is maximum. (a) = Only exports. (b) = Only imports. Appendix Table A.5 India: Intra-Industry, Trade Index (T) (+) SITC Commodities 1980 1990 1993 0 Food and Live Animals 0.36 0.37 0.55 01 Meat and Preparations 0 (a) 0 (a) 0 (a) 02 Dairy Products, Birds' Eggs 0 (b) 0 (b) None 022 Milk and Cream 0 (b) None None 03 Fish and Preparations 0 (a) 0 (a) 0 (a) 04 Cereals and Preparations 0.73 0.52 0.35 05 Vegetables and Fruit 0.38 0.96 0.86 06 Sugar and Preparations, Honey 0.61 0 (b) 0.19 07 Coffee, Tea, Cocoa, Spices 0 (a) 0 (a) 0 (a) 1 Beverages and Tobacco 0 (a) 0 (a) 0 (a) 2 Crude Materials, Excluding Fuels 0.75 0.87 0.92 22 Oil Seeds, Oleaginous Fruit 0.48 0 (a) 0 (a) 24 Cork and Wood 0 (a) 0 (b) 0 (b) 251 Pulp and Waste Paper 0 (b) 0 (b) 0 (b) 26 Textile Fibres and Waste 0.99 0.66 0.83 264 Jute, Other Fibres None None None 27 Crude Fertiliser, Minerals 0.57 0.55 0.82 28 Metalliferous Ores, Scrap 0.40 0.95 0.86 29 Crude Animal, Vegetable Materials 0 (a) 0 (a) 0 (a) 3 Mineral Fuels etc. 0.92 0.15 0.15 33 Petroleum and Products 0.01 0.16 0.13 4 Animal, Vegetable Oil, Fat 0.08 0 (b) 0.98 5 Chemical, Related Products 0.36 0.60 0.68 51 Organic Chemicals 0 (b) 0.45 0.58 52 Inorganic Chemicals 0.24 0.23 0.24 53 Dyes, Tanning, Colour Productions 0.50 0.56 0.44 541 Medicine, Pharmaceutical Products 0.93 0.73 0.70 562 Fertilisers, Manufacture 0 (b) 0 (b) 0 (b) 58 Plastic Materials etc. 0 (b) 0 (b) 0.18 59 Chemical Materials 0 (b) 0.64 0.72 6 Basic Manufactures 0.97 0.83 0.69 61 Leather, Dressed Fur, etc. 0 (a) 0.18 0.33 62 Rubber Manufactures 0 (a) 0 (a) 0 (a) 64 Paper, Paperboard and Manufacturing 0 (b) 0 (b) 0 (b) 65 Textile Yarn, Fabrics, etc. 0.12 0.20 0.15 66 Nonmetal Mineral Manufactures 0.95 0.88 0.82 661 Line, Cement, Building Products 0 (b) None 0 (a) 67 Iron and Steel 0.19 0.39 0.99 68 Non-ferrous Metals 0.07 0.26 0.43 69 Metal Manufactures 0.55 0.65 0.54 7 Machines, Transport Equipment 0.51 0.48 0.52 71 Power Generating Equipment 0.81 0.57 0.69 72 Machines for Special Industries 0.34 0.49 0.31 73 Metalworking Machinery 0.40 0.35 0 (b) 74 General Industrial Machinery 0.28 0.29 0.36 75 Office Machines 0 (b) 0.64 0.73 76 Telecommunications Equipment 0 (b) 0 (b) 0 (b) 77 Electric Machinery 0.73 0.49 0.52 78 Road Vehicles 0.54 0.91 0.51 79 Other Transport Equipment 8 Miscellaneous Manufactured Goods 0.39 0.39 0.28 84 Clothing and Accessories 0 (a) 0 (a) 0 (a) 87 Precision Instruments Necessary 0 (b) 0 (b) 0 (b) 88 Photoequipment, Optical Goods 0.70 0 (b) 0 (b) 89 Miscellaneous Manufactured Goods 0.28 0.74 0.41 9 Goods not Classified by Kind 0.16 0.39 0.32 SITC Commodities Comment 0 Food and Live Animals Intra-industry trade has been rising following trade liberalisation 01 Meat and Preparations Only exports 02 Dairy Products, Birds' Eggs Trade ceased following trade liberalisation 022 Milk and Cream Trade ceased following trade liberalisation 03 Fish and Preparations Only exports 04 Cereals and Preparations Intra-industry trade has declined following trade liberalisation 05 Vegetables and Fruit Intra-industry trade increased after trade liberalisation but has fallen recently 06 Sugar and Preparations, Honey Intra-industry trade has declined since the 1980s 07 Coffee, Tea, Cocoa, Spices Only exports 1 Beverages and Tobacco Only exports 2 Crude Materials, Excluding Fuels Intra-industry trade has increased following trade liberalisation 22 Oil Seeds, Oleaginous Fruit Only exports following trade liberalisation 24 Cork and Wood Only imports following trade liberalisation 251 Pulp and Waste Paper Only imports 26 Textile Fibres and Waste Intra-industry trade has been felling following trade liberalisation 264 Jute, Other Fibres No trade exists 27 Crude Fertiliser, Minerals Intra-industry trade has increased following trade liberalisation 28 Metalliferous Ores, Scrap Intra-industry trade sharply increased following trade liberalisation but has declined recently 29 Crude Animal, Vegetable Materials Only exports 3 Mineral Fuels etc. Intra-industry trade has declined following trade liberalisation 33 Petroleum and Products Intra-industry trade increased following trade liberalisation but has declined recently 4 Animal, Vegetable Oil, Fat Intra-industry trade has increased following trade liberalisation 5 Chemical, Related Products Intra-industry trade has increased following trade liberalisation 51 Organic Chemicals Intra-industry trade has increased following trade liberalisation 52 Inorganic Chemicals Intra-industry trade has remained unchanged following trade liberalisation 53 Dyes, Tanning, Colour Productions Intra-industry trade has decreased following trade liberalisation 541 Medicine, Pharmaceutical Products Intra-industry trade has decreased following trade liberalisation 563 Fertilisers, Manufacture Only imports 58 Plastic Materials etc. Intra-industry trade has increased following trade liberalisation 59 Chemical Materials Intra-industry trade has increased following trade liberalisation 6 Basic Manufactures Intra-industry trade has been falling following trade liberalisation 61 Leather, Dressed Fur, etc. Intra-industry trade has increased following trade liberalisation 62 Rubber Manufactures Only exports 64 Paper, Paperboard and Manufacturing Only imports 65 Textile Yarn. Fabrics, etc. Intra-industry trade increased following trade liberalisation but has declined recently 66 Nonmetal Mineral Manufactures Intra-industry trade has decreased following trade liberalisation 661 Line, Cement, Building Products Trade pattern has changed from only imports to only exports following trade liberalisation 67 Iron and Steel Intra-industry trade has reached to the maximum following trade liberalisation 68 Non-ferrous Metals Intra-industry trade has increased following trade liberalisation 69 Metal Manufactures Intra-industry trade increased following trade liberalisation but has decreased recently 7 Machines, Transport Equipment Intra-industry trade has remained unchanged following trade liberalisation 71 Power Generating Equipment Intra-industry trade decreased following trade liberalisation but has increased recently 72 Machines for Special Industries Intra-industry trade increased following trade liberalisation but has decreased recently 73 Metalworking Machinery Intra-industry trade decreased following trade liberalisation and now only imports 74 General Industrial Machinery Intra-industry trade has increased following trade liberalisation 75 Office Machines Intra-industry trade has increased following trade liberalisation 76 Telecommunications Equipment Only imports 77 Electric Machinery Intra-industry trade decreased following wade liberalisation 78 Road Vehicles Intra-industry trade increased following trade liberalisation but has decreased recently 79 Other Transport Equipment 8 Miscellaneous Manufactured Goods Intra-industry trade has decreased following trade liberalisation 84 Clothing and Accessories Only exports 87 Precision Instruments Necessary Only imports 88 Photoequipment, Optical Goods Intra-industry trade has ceased following trade liberalisation; now only imports 89 Miscellaneous Manufactured Goods Intra-industry trade increased after trade liberalisation and has declined recently 9 Goods not Classified by Kind Intra-industry trade increased following trade liberalisation Notes and Source: As Table A.4. Appendix Table A.6 Bangladesh's Intra-industry Trade with India, 1992 Harmonised Commodity Description and Coding System (H.S.) 1989 1992 1 Live Animals; Animal Products 0 (b) 0.01 2 Vegetable Products 0.01 ... (b) 3 Animal or Vegetable Fats and Oils and Their Cleavage Products; Prepared Edible Fats; Animal or Vegetable Wages 0 (a) 0.19 4 Prepared Foodstuffs; Beverages, Spirits and Vinegar; Tobacco and Manufactured Tobacco Substitutes 0.02 0.04 5 Mineral Products ... (b) 0.01 6 Products of the Chemical or Allied Industries 0.18 0 (b) 7 Plastics and Articles thereof; Rubber and Articles thereof 0 (b) 0 (b) 8 Raw Hides and Skins, Leather Furskins and Articles thereof; Saddlery and Harness: Travel Goods, Handbags and Similar Containers; Articles of Animal Gut (Other than Silk Work Gut) 0.06 0.16 9 Wood and Articles of Wood; Wood Charcoal; Cork and Articles of Cork; Manufactures of Straw of Esparto or of other Plaiting Materials; Basketware and Wike Work 0 (b) 0 (b) 10 Pulp of Wood or of other Fibrous Cellulosic Material; Waste and Scrap of Paper or Paper Board; Paper and Paperboard Articles thereof 0.01 0 (b) 11 Textiles and Textile Articles 0.04 0.04 12 Footwear Headgear, Umbrellas, Sun Umbrellas, Walking Sticks, Seat Sticks, Whips, Riding-crops and Parts thereof; Prepared Feathers and Articles Make therewith; Artificial Flowers; Articles of Human Hair 0 (b) 0 (b) 13 Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials; Ceramic Products; Glass and Glassware 0 (b) 0 (b) 14 Natural or Cultured Pearls, Precious or Semi-precious Stones, Precious Metals Clad with Precious Metal and Articles thereof, Imitation Jewellery; Coin 0 (b) 0 (b) 15 Base Metals and Articles of Base Metal 0.01 0.01 16 Machinery and Mechanical Appliances, Electrical Equipment. Parts thereof; Sound Recorders and Reproducers, Television Image and Sound Recorders and Reproducers and Parts and Accessories of Such Articles 0.01 ... (b) 17 Vehicles, Aircraft Vessels, and Associated Transport Equipment ... (b) ... (b) 18 Optical Photographic, Cinematographic, Measuring, Checking, Precision, Medical Surgical Instruments and Apparatus; Clocks and Watches; Musical Instruments, Parts and Accessories thereof 0 (b) 0 (b) 19 Arms and Ammunition, Parts and Accessories thereof None None 20 Miscellaneous Manufactured Articles 0 (b) 0 (b) 21 Work of Art, Collectors, Pieces and Antiques 0.20 0.48 Total 0.04 0.01 Source: Authors' computation based on BBS, SYBB, 1995. Note: ... (b) = only imports; negligible exports.
BANGLADESH'S IMPORTS FROM INDIA: AN APPLICATION OF THE GRAVITY MODEL
We use a simple variant variant /var·i·ant/ (var´e-ant)
1. something that differs in some characteristic from the class to which it belongs.
2. exhibiting such variation.
adj. of the gravity model, pioneered by Tinbergen (1962), Poyhonen (1963) and Linnemann (1966) and recently used by Frankel (1991) and Learner (1993), to estimate the normal or standardised or theoretical levels of imports of Bangladesh from India (and other countries) based on the actual import flows to Bangladesh from its 28 major trading partners since it started import-liberalisation in the year of 1982. The estimates of normal imports are then used to compute To perform mathematical operations or general computer processing. For an explanation of "The 3 C's," or how the computer processes data, see computer. deviations from actual import flows to determine whether such deviations indicate discriminatory dis·crim·i·na·to·ry
1. Marked by or showing prejudice; biased.
2. Making distinctions.
dis·crim trade impediments IMPEDIMENTS, contracts. Legal objections to the making of a contract. Impediments which relate to the person are those of minority, want of reason, coverture, and the like; they are sometimes called disabilities. Vide Incapacity.
2. against or preferential trade stimuli in favour of a trading partner.
The basic model is specified in the following logarithmic logarithmic
pertaining to logarithm.
when the logs of two variables plotted against each other create a straight line. form in which three variables are assumed to determine the import flows to Bangladesh from its trading partners:
ln [rim.sup.j] = [beta]0 + [beta]1 ln [y.sup.b] + [beta]2 ln [y.sup.j] + [beta]3 ln [d.sup.j] + u where
[rim.sup.j] = Bangladesh's imports from country j (million US$) at 1990 prices;
[y.sup.b] = Bangladesh's GDP (billion US$) at 1990 prices;
[y.sup.j] = GDP (billion US$) of Bangladesh's trading partner j at 1990 prices;
[d.sup.j] = distance between Dhaka and a major city of Bangladesh's trading partner j;
u = random error term; and
[beta]s = structural parameters to be estimated.
In this model [y.sup.b] is a measure of both the purchasing power Purchasing Power
1. The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you'd be able to purchase.
2. and the productive potential of Bangladesh. The higher the productive potential of Bangladesh the lower is expected to be the level of its imports from any trading partner. By contrast, the higher the level of purchasing power of Bangladesh the higher is expected to be the level of its imports from any trading partner. As these two effects work in opposite directions, the sign of the coefficient of [y.sup.b] is indeterminate in theory but may be determined empirically. [y.sup.j] is a measure of exporting potential of country j to Bangladesh and the coefficient of it is expected to have a positive sign. The distance variable ([d.sup.j]) captures transportation costs, geographical proximity and regional preferences or groupings and the coefficient of it is expected to have a negative sign [Learner and Levinsohn (1995)]. The error term is assumed to satisfy all the standard classical properties.
For estimating the numerical numerical
expressed in numbers, i.e. Arabic numerals of 0 to 9 inclusive.
a numerical code is used to indicate the words, or other alphabetical signals, intended. values of [beta]s, annual data for 28 countries over the period 1982-1995 have been used. The included countries are Australia, Belgium, Canada, China, P.R., Denmark, Egypt, Finland, France, Germany, India, Indonesia, Iran, Italy, Japan, Korea, Malaysia, Myanmar, Netherlands, Norway, Pakistan, Saudi Arabia Saudi Arabia (sä`dē ərā`bēə, sou`–, sô–), officially Kingdom of Saudi Arabia, kingdom (2005 est. pop. , Singapore, Sweden, Switzerland, Thailand. United Arab Emirates United Arab Emirates, federation of sheikhdoms (2005 est. pop. 2,563,000), c.30,000 sq mi (77,700 sq km), SE Arabia, on the Persian Gulf and the Gulf of Oman. , United Kingdom, and the United States. These countries cover all the major regions of the world and they supply more than 80 percent of Bangladesh's total imports. As Bangladesh does not have imposed any trade impediments to any particular country (except Israel) after it started trade liberalisation, we can assume that its imports from most countries closely follow the normal or standard pattern. The specified model if estimated with a large number of observations will capture the normal or theoretical trade pattern and then allow us to explain unusual or systematic deviations of imports from any individual country in terms of trade Terms of trade
The weighted average of a nation's export prices relative to its import prices. impediments for stimuli.
Data for import flows are taken from the Bangladesh Bank Bangladesh Bank is the Central bank of Bangladesh. History
After the liberation war, and the eventual independence of Bangladesh, the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country, and named it , Annual Import Payments (Various Years). Using the yearly average exchange rate of taka against the US dollar, the import figures in taka are converted into US dollars. The dollar figures are then deflated by the producer price index of the United States with the base of 1.00 for 1990. Data for country-specific GDP in domestic currency are first converted into US dollar using the yearly average exchange rate of domestic currency per unit of US dollar and then deflated the resulting output figures by the producer price index of the United States with the base of 1.00 for 1990. All these basic data are taken from IMF IMF
See: International Monetary Fund
See International Monetary Fund (IMF). , IFS Yearbook 1997. The Jayes Travel (Newcastle) has kindly supplied us with the data for dj in kilometres.
We have estimated the model with 392 observations (28x14) for each variable using AR1 (exact maximum likelihood method) to correct for the first-order autocorrelation Autocorrelation
The correlation of a variable with itself over successive time intervals. Sometimes called serial correlation. . The regression results are reported below:
ln [rim.sup.i] = 3.66 +0.30 ln [y.sup.b] +0.39 ln [y.sup.j] (absolute t-ratios) (1.74) (1.96) (5.57) -0.31 ln [D.sup.j] (1.27) Adjusted [R.sup.2] = 0.73 DW = 2.59 Autoregressive error specification: u = 0.82 u(-1) + error (t-ratio) (28.56)
Following the estimation of the model, the deviations of actual imports from the fitted imports are generated for all the countries in the sample. For analytical convenience, the actual and fitted values of imports, which are in logarithms, are converted into US dollar. Given our limited purpose, Table B. 1 reports these figures only for India. It shows that the actual imports of Bangladesh from India since 1988 have been considerably higher from the normal or theoretical levels. The gaps have shown an increasing trend since the early 1990s, reaching to 48 percent of actual imports in 1995 from 16 percent in 1988. This is exhibited in the accompanied Figure B.1, which plots the actual and fitted values of imports for the sample period. Our findings here are thus consistent with the argument in the text that the sharp devaluation of India's rupee since the late 1980s led to the growth of Bangladesh's imports from India in excess of what can be considered normal or standard by the gravity model.
[FIGURE B.1. OMITTED]
Appendix Table B.1 Actual and Fitted Values of Bangladesh's Imports from India, 1982-1995 Import Deviation Actual Fitted Imports Imports % of Actual Year (Million US$) (Million US$) (Million $US) Imports 1982 62.12 101.83 -39.71 -63.92 1983 38.05 65.82 -27.77 -72.98 1984 54.60 44.58 10.02 18.35 1985 70.32 60.65 9.67 13.75 1986 68.72 77.98 -9.26 -13.47 1987 71.81 76.64 -4.83 -6.73 1988 93.41 78.28 15.13 16.20 1989 106.80 93.23 13.57 12.71 1990 138.38 107.43 30.95 22.37 1991 175.74 127.00 48.74 27.73 1992 224.75 158.72 66.03 29.38 1993 330.63 191.60 139.03 42.05 1994 397.82 283.07 114.75 28.84 1995 640.34 330.51 309.83 48.39
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(1) By October 1972, the size of trade imbalance was Rs 40 million in India's favour [Wright (1988)]. The illegal trade imbalance during 1972-1973 was probably in favour of India. In the years 1974 and 1975 it could have been in favour of Bangladesh as there was large scale illegal exports of raw jute, rice and other commodities from Bangladesh as part of capital flight [Ahmed (1984) and Rahim (1973)].
(2) After Bangladesh gained independence, the exchange rate of the newly created Bangladesh currency (taka) was set at parity parity or space parity, in physics, quantity that refers to the relationship between an object or process and the image that it can produce in a mirror. with the Indian rupee.
(3) With the growth of anti-India feeling in Bangladesh immediately after its independence, a great many of India's low-quality products became the butt BUTT. A measure of capacity, equal to one hundred and eight gallons. See Measure. of jokes. It was widely believed that India took advantage of general scarcities in Bangladesh and dumped its unsaleable products on Bangladesh's markets with the connivance The furtive consent of one person to cooperate with another in the commission of an unlawful act or crime—such as an employer's agreement not to withhold taxes from the salary of an employee who wants to evade federal Income Tax. of the then pro-Indian Bangladesh government. Some opposition political leaders saw it as part of India's conspiracy to make Bangladesh a captive captive
said of naturally wild or feral animals kept in captivity for educational and scientific investigation with no attempt being made to domesticate them. market of the Indian products. For example, at a public meeting in Chittagong in June 1973, the late Maulana Bhashani, then a prominent political figure, encouraged people to boycott boycott, concerted economic or social ostracism of an individual, group, or nation to express disapproval or coerce change. The practice was named (1880) after Capt. all Indian made goods and to burn and picket shops selling them [Wright (1988)].
(4) Since the overthrow of the Mujib government, India was not a favourite source of Bangladesh's imports until the late 1980s. The post-Mujib government under Zia was not so friendly with India. Also, as the Zia government brought some stability in prices and adopted a relatively flexible exchange rate system, economic incentives behind imports from India (legal and illegal) were somewhat reduced.
(5) One should expect a decline in the volume of illegal trade after trade liberalisation in both these countries. In a recently conducted BIDS study by Rahman and Razzaq (1998), it was found that this did not happen in case of Bangladesh's illegal imports from India. Although Bangladesh has lowered the average unweighted tariff rate from about 58 percent in 1990 to 22 percent in 1996 and reduced quantitative trade restrictions from 315 in 1990 to 118 in 1996 [Bangladesh (1995, 1996, 1997)], these measures did not eliminate incentives behind illegal imports from India. Administrative inefficiency, various taxes, and pervasive pervasive,
adj indicates that a condition permeates the entire development of the individual. corruption among custom and trade officials remain the primary reasons behind illegal imports from India. Given that an appreciation of Bangladesh's taka with India's rupee has created and maintained an excess demand for the Indian products, the volume of illegal import has increased. This is not a paradox paradox, statement that appears self-contradictory but actually has a basis in truth, e.g., Oscar Wilde's "Ignorance is like a delicate fruit; touch it and the bloom is gone. , rather one should expect it for reasons suggested by Rahman and Razzaq (1998). They point out that the relative ease at which illegal import trade took place in recent years decreased, but not eliminated, the border price differences for most illegally imported commodities. As this lowered the profit margins, smugglers diversified diversified (di·verˑ·s the composition of their illegal import trade and increased the volume of such trade to such a level that ensured their expected high levels of profits.
(6) Smugglers acquire hard currencies from both domestic black markets and overseas Bangladeshi workers through informal channels, such as hundies.
(7) See the recent internet editions of the Daily Star, Amitech: News from Bangladesh, and The Independent. For an academic analysis, see Sobhan (1990, 1996); Khan (1995) and CPD (1995, 1996).
(8) For an early articulation articulation
In phonetics, the shaping of the vocal tract (larynx, pharynx, and oral and nasal cavities) by positioning mobile organs (such as the tongue) relative to other parts that may be rigid (such as the hard palate) and thus modifying the airstream to produce speech of such a view, see Sobhan ( 1990:32):
India has acquired both the experience and capability to export a whole range of services which include the capability to manufacture and install plants on a turnkey basis in such areas as cotton and woollen textiles, cement, sugar, electrical power systems, blast furnaces, thermal power plants, fertiliser plants, general purpose machine tools, steel mills, railway systems and railway equipment. In the range of intermediate technology it has developed technology to produce plants for rice husking, extracting edible oils from rice husk, small sugar plants, canning processes, and a wide range of farm implements including irrigation pumps and diesel engines. It is moving into the micro-chip age as a growing exporter of computer software and inputs into the micro-electronic revolution.
(9) In general, bilateral trade balance is not a requirement for economic welfare and a multilateral trade balance is only a long-run objective to be achieved through appropriate macroeconomic policies, not trade policies. From this viewpoint, Bangladesh's bilateral trade deficits with India may not seem to be an economic problem. One may even argue that given its geographic proximity and higher level of development, India becomes a natural source of Bangladesh's imports. While these points have some validity, we will argue and show that Bangladesh's trade imbalance with India should be considered a special case for both economic and political reasons.
(10) Razzaq (1998: 1-2) aptly captures the popular sentiment as follows:
Given the past history, it is inconceivable that ... a [friendly] relationship would develop between India and Bangladesh. In the 26 years of its existence, Bangladesh did not get its fair share: Be it Farakka or Talpotti, Berubari or Angarpata and Dahagram, border trade or international trade. India always wants to take and does not want to give ... Whereas Indian goods finds its easy way to Bangladesh lawfully or unlawfully, there is a mountain of barrier for the Bangladeshi goods to enter into India. Bangladesh has become a free market of Indian goods. Bangladesh is too weak to declare a trade war against India as European Union could declare against America, or America against Japan without jeopardising the friendly relations. About the same time when Anup Chetia, an Indian rebel, was arrested in Dhaka, Shantu Larma, a Bangladeshi rebel, was kept in a guesthouse at Agartola and flown by military helicopter in Dhaka. This is why anti-Indian feeling runs high in Bangladesh.... No politician, however loyal may be to India, would dare to sound pro-India publicly.
It is, indeed, intriguing in·trigue
a. A secret or underhand scheme; a plot.
b. The practice of or involvement in such schemes.
2. A clandestine love affair.
v. that Tofael Ahmed, the influential Commerce and Industries Minister of the present pro-Indian Awami League government commented that "India is milking Bangladesh giving nothing in return" (The Daily Star, 27 July 1998).
(11) We have borrowed these words from Lee (1995:1205).
(12) Consider the following statistics. In 1993 the purchasing-power-parity estimates of GNP GNP
See: Gross National Product per capita [Latin, By the heads or polls.] A term used in the Descent and Distribution of the estate of one who dies without a will. It means to share and share alike according to the number of individuals. for Bangladesh and India were 5.2 and 4.9 compared to 100 for USA. The data [or income distribution in 1989-1990 show that the lowest 20 percent of population received 9.5 percent of income in Bangladesh compared to 8.8 percent in India. In the distribution of GDP, the share of agriculture was about 30 percent in both these countries, while the share of manufacturing was relatively higher in India and the share of services was relatively higher in Bangladesh. In the distribution of manufacturing value added, the shares of food beverages and clothing and textiles were relatively higher in Bangladesh and those of machineries and transport equipment were relatively higher in India. The demographic and literacy indicators, such as life expectancy Life Expectancy
1. The age until which a person is expected to live.
2. The remaining number of years an individual is expected to live, based on IRS issued life expectancy tables. , population growth rate, total fertility rate The total fertility rate (TFR, sometimes also called the fertility rate, period total fertility rate (PTFR) or total period fertility rate (TPFR)) of a population is the average number of children that would be born to a woman over her lifetime if she , infant mortality rate infant mortality rate
The ratio of the number of deaths in the first year of life to the number of live births occurring in the same population during the same period of time. , literacy rate, and student enrolments, suggest that India was marginally ahead of Bangladesh in these respects.
(13) Following Salvatore (1995), the broad comparative advantage of a nation can be inferred from the excess in the percentage of total exports over the percentage of total imports in each major commodity group. The idea is that a country is considered to have a comparative advantage in a product group if it is net exporter for that commodity group; that is, the export/import ratio for that category exceeds unity. The percentage shares of exports and imports show that although Bangladesh, India and China have a comparative advantage in the export of labour-intensive manufactures, such as textiles and clothing, in capital and technology-intensive products, such as machinery and transport equipment, the comparative advantage belongs to Korea, Japan and USA.
(14) The RCA is estimated by calculating the share of a particular commodity group in an economy's total exports and then dividing it by that commodity group's share of world exports. Formally. [RCA.sub.ij] = [([X.sub.ij]/[X.sub.i,j])]/[([X.sub.iw]/[X.sub.t,w])] where [RCA.sub.i,j] are j country's revealed comparative advantage index for product group i, [X.sub.ij] are exports of product i by exporting country j, [X.sub.t,j] are total exports by exporting country j, [X.sub.i,w] are world exports of product i and [X.sub.t,w] are world exports of all products. The interpretation of an index number of, say, 1.2 is that the export share of the country in the commodity i is about 20 percent higher than the share in the total exports of that product of the world [Lee (1995)].
(15) Note that the RCA measure for SITC 1-2 digit industries may not reveal fully the true nature of comparative advantage.
(16) The equation was estimated with a trade liberalisation dummy Sham; make-believe; pretended; imitation. Person who serves in place of another, or who serves until the proper person is named or available to take his place (e.g., dummy corporate directors; dummy owners of real estate). . It takes a value 1 beginning from 1983 and zero for earlier years. However, note that as the regression results with the trade liberalisation dummy are not much different from the results without such dummy, it does not matter much which of the two set of results is used for analysis. The coefficient of trade liberalisation dummy is not significant in any of the estimated equations.
(17) Although Khan (1995:13) did not test his proposition, he made a similar argument:
... one must look for the economic reason behind the massive rise in imports from India.... the Bangladesh taka has dramatically appreciated vis-a-vis the Indian Rupee, by as much as 32 percent since 1987. It is m)t at all surprising that the deficit of Bangladesh with India in aggregate trade, legal and illegal, has exploded.
(18) On the other hand, despite deep currency devaluation, India's inflation rate decelerated from about 13 percent during the two years 1991-1992 to about 8 percent during the three years 1993-1995. This reflects the fact that any link between currency devaluation and inflation is weak. Whatever link is there, it should not be assumed but tested for policy-making.
(19) The first author read about this comment in a report from Calcutta, which was published most probably in the Amitech: News from Bangladesh [http://bangladesh-web.com/news] sometime in June-July 1997. Later, despite his search, he could not locate the report or the precise date of its publication.
(20) Following is a news report from New Delhi on the quality of Indian products published in The Independent (2 September, 1988:7):
There have been enough press reports of fungus-infected IV [intravenous] fluid, synthetic milk, adulterated sweets, contaminated species and spurious liquor. Not to speak of the developed world, even in the developing countries the Indian goods have become a suspect with regard to their quality ... Sri Lanka suspended the import of the DPT vaccine from India last year after a batch was found to be sub-standard. Rampant adulteration of black pepper has led to Indian pepper being banned in many countries. An Indian Council of Medical Research Survey of food contaminants a few years ago made frightening reading. Among other things, it found that turmeric, which is commonly used in Indian food. contained cadmium, arsenic and lead.
(21) Following is an editorial in The Independent (23 September, 1998) under the caption "oil or poison poison, any agent that may produce chemically an injurious or deadly effect when introduced into the body in sufficient quantity. Some poisons can be deadly in minute quantities, others only if relatively large amounts are involved. ?":
... 21 people [in Pabna have fallen ill] within the span of a week after consuming food containing adulterated mustard oil. It is reported that in Pabna district the majority of the mill owners and oil traders are mixing a few drops of an essence with the oil produced from till, tishi, rai, soyabean, ground nut and other materials. The mixture is then sold as mustard oil. The essence is reportedly being smuggled in from India. A bottle of this toxic essence is supposed to cost a few hundred taka but the extra return from the tins and barrels of spurious mustard oil is calculated to amount to thousand.
(22) Adam Smith (1937) found it reasonable to impose retaliatory re·tal·i·ate
v. re·tal·i·at·ed, re·tal·i·at·ing, re·tal·i·ates
To return like for like, especially evil for evil.
To pay back (an injury) in kind. duties on imports from a foreign nation that restrains imports by high duties or prohibitions only when there was a probability that such an action would lead to a repeal The Annulment or abrogation of a previously existing statute by the enactment of a later law that revokes the former law.
The revocation of the law can either be done through an express repeal of the high duties and prohibitions complained of. When there was no probability that such a repeal could be procured through retaliation RETALIATION. The act by which a nation or individual treats another in the same manner that the latter has treated them. For example, if a nation should lay a very heavy tariff on American goods, the United States would be justified in return in laying heavy duties on the manufactures and , he favoured unilateral unilateral /uni·lat·er·al/ (-lat´er-al) affecting only one side.
On, having, or confined to only one side. free trade [Bhagwati (1991)].
(23) Choudhury (1998) reports that in response to Dhaka's request at a recent secretary level meeting to implement measures that may reduce trade deficit with India, New Delhi's suggestion was to "sell transit and port facilities". This is an arrogant ar·ro·gant
1. Having or displaying a sense of overbearing self-worth or self-importance.
2. Marked by or arising from a feeling or assumption of one's superiority toward others: response and a crude method of playing the politics of power with the intention of blackmailing Black´mail`ing
n. 1. The act or practice of extorting money by exciting fears of injury other than bodily harm, as injury to reputation. Bangladesh--economically and politically [Ahmed (1998a)]. This reinforces the growing perception that India wants Bangladesh to remain an economically vulnerable country so that it can manipulate manipulate
To cause a security to sell at an artificial price. Although investment bankers are permitted to manipulate temporarily the stock they underwrite, most other forms of manipulation are illegal. this country for its own interests. Such an apprehension The seizure and arrest of a person who is suspected of having committed a crime.
A reasonable belief of the possibility of imminent injury or death at the hands of another that justifies a person acting in Self-Defense against the potential attack. has been heightened since India's recent nuclear tests
(24) We thank a commentator for pointing out this option.
(25) Some critics even go further to suggest that this is part of the so-called Gujral doctrine, which in all intents and purposes is a blueprint blueprint, white-on-blue photographic print, commonly of a working drawing used during building or manufacturing. The plan is first drawn to scale on a special paper or tracing cloth through which light can penetrate. of India's becoming an undisputed regional hegemon heg·e·mon
One that exercises hegemony.
[Greek hgem as a stepping stone to become a global, if not a super, power.
(26) For example, Bhagwati (1991:10) writes about such a consequence of foreign cheap products:
While ... an economist is right to claim that, if foreign governments subsidise their exports, this is simply marvellous as we get cheaper goods and we should unilaterally continue our free trade policy, he must equally recognise that the acceptance of this position will fuel demands for protection and imperil the possibility of maintaining the legitimacy, and hence the continuation, of free trade. A free trade regime that does not reign in, or seek to regulate. artificial subventions will likely help trigger its own demise ... [In the same way as Milton Friedman asked, he raised a question]: Would one be wise to receive stolen property simply because it is cheaper, or would one rather vote to prohibit such transactions because of their systematic consequences?
(27) Bribes of one form or another are an integral part of business lobbying and, in a country where there are no strong checks and balances in public administration, the personal interests of policy-makers, politicians and other influential groups, whether they act jointly or individually, can override An arrangement whereby commissions are made by sales managers based upon the sales made by their subordinate sales representatives. A term found in an agreement between a real estate agent and a property owner whereby the agent keeps the right to receive a commission for the sale of the national interests. There is a rich body of literature on lobbying and corruption under the rubric RUBRIC, civil law. The title or inscription of any law or statute, because the copyists formerly drew and painted the title of laws and statutes rubro colore, in red letters. Ayl. Pand. B. 1, t. 8; Diet. do Juris. h.t. of what Jagdish Bhagwati Jagdish Natwarlal Bhagwati (जगदीश भगवती, born 1934) is a prominent economist noted for his defense of free trade against the critics of globalization. He is a University Professor of Economics at Columbia University. calls directly unproductive profit-seeking activities. For details, see Bhagwati (1991) and the references therein.
Akhtar Hossain is International Economist, IMF--Singapore Regional Training Institute, Singapore and Salim Rashid is Professor of Economics, University of Illinois at Urbana-Champaign Early years: 1867-1880
The Morrill Act of 1862 granted each state in the United States a portion of land on which to establish a major public state university, one which could teach agriculture, mechanic arts, and military training, "without excluding other scientific , Illinois, USA.
Table 1 Commodity-wise Percentage Shares of Bangladesh's Official Imports from India, 1988-1996 Commodities 1987-88 1988-89 1989-90 (a) Live Animals; Animal Products; Vegetable Products, etc. 7.0 10.7 9.2 (b) Prepared Foodstuffs; Tobacco and Manufactured Tobacco Products 1.4 1.0 0.9 (c) Mineral Products 6.8 7.3 7.0 (d) Products of the Chemical or Allied Industries 6.6 4.9 5.1 (e) Plastics, Rubber and Articles thereof 5.1 5.1 5.3 (f) Raw Hides and Skins; Travel Goods etc. Wood and Articles of Wood ... (a) ... (a) ... (a) (g) Textiles and Textile Articles 3.10 3.60 2.70 (h) Articles of Stone, Plaster, and Cement; Ceramic Products; Glass and Glass Ware 2.2 2.1 2.8 (i) Base Metals and Articles of Base Metal 4.1 6.4 8.3 (j) Machinery and Mechanical Appliances; Electrical Equipment, etc. 19.6 15.6 2.1 (k) Vehicles, Aircraft Vessels, and Transport Equipment 14.5 9.6 10.8 (l) Optical Photographic, Cinematographic; Medical Surgical Instruments; Musical Instruments etc. 0.3 0.4 0.5 (m) Unclassified 29.3 33.3 45.3 Imports from: India Million Taka 4,106 5,428 7,038 Percent of Global Total 4.5 5.7 6.2 World Million Taka 91,588 95,075 113,305 Commodities 1990-91 1991-92 (a) Live Animals; Animal Products; Vegetable Products, etc. 15.8 23.6 (b) Prepared Foodstuffs; Tobacco and Manufactured Tobacco Products 1.1 0.9 (c) Mineral Products 11.3 13.6 (d) Products of the Chemical or Allied Industries 6.6 7.6 (e) Plastics, Rubber and Articles thereof 7.2 6.2 (f) Raw Hides and Skins; Travel Goods etc. Wood and Articles of Wood ... (a) ... (a) (g) Textiles and Textile Articles 1.50 1.70 (h) Articles of Stone, Plaster, and Cement; Ceramic Products; Glass and Glass Ware 0.8 1.1 (i) Base Metals and Articles of Base Metal 11.1 9.2 (j) Machinery and Mechanical Appliances; Electrical Equipment, etc. 2.2 1.5 (k) Vehicles, Aircraft Vessels, and Transport Equipment 6.6 3.6 (l) Optical Photographic, Cinematographic; Medical Surgical Instruments; Musical Instruments etc. 0.4 0.3 (m) Unclassified 35.4 30.7 Imports from: India Million Taka 9,445 8,824 Percent of Global Total 8.4 6.7 World Million Taka 111,877 132,756 Commodities 1994-95 1995-96 (a) Live Animals; Animal Products; Vegetable Products, etc. 23.2 56.2 (b) Prepared Foodstuffs; Tobacco and Manufactured Tobacco Products 10.3 27.5 (c) Mineral Products 16.3 12.9 (d) Products of the Chemical or Allied Industries 18.1 18.3 (e) Plastics, Rubber and Articles thereof 12.0 8.8 (f) Raw Hides and Skins; Travel Goods etc. Wood and Articles of Wood 20.0 ... (a) (g) Textiles and Textile Articles 18.30 19.30 (h) Articles of Stone, Plaster, and Cement; Ceramic Products; Glass and Glass Ware 24.3 22.9 (i) Base Metals and Articles of Base Metal 16.1 12.4 (j) Machinery and Mechanical Appliances; Electrical Equipment, etc. 9.9 10.9 (k) Vehicles, Aircraft Vessels, and Transport Equipment 20.9 20.3 (l) Optical Photographic, Cinematographic; Medical Surgical Instruments; Musical Instruments etc. 5.6 3.1 (m) Unclassified 30.4 29.7 Imports from: India Million Taka 27,679 44,926 Percent of Global Total 12.2 16.6 World Million Taka 226,628 270,318 Source: Authors' computation based on BBS (Various Years) Statistical Yearbook of Bangladesh. Bangladesh Bank, Annual Import Payments 1996. Notes: ... (a) = negligible. The share distribution of imports is commodity wise. Take for example, the first row-life animals and animal products. It shows that Bangladesh imported 7 percent of total life animal and animal product imports from India in 1988 and the remaining 93 percent were imported from the rest of the world. These two figures make 100 percent. In 1996 Bangladesh imported 56 percent of life animals and animals products from India and the remaining 44 percent from the rest of the world. These two figures also make 100 percent. In this way the 100 percent constraint for all the product categories is satisfied. These figures show that there has been a shift in import sourcing share from India vis-a-vis the rest of the world. In 1988 the share was 4.5 percent (that is, the remaining 95.5 percent from the rest of the world). The share increasing to 16.6 percent in 1996 (that is, the remaining 83.4 percent from the rest of the world). Table 2 Structure of Bangladesh's Exports to India (Percent of Total) Commodities 1994 1995 1996 (a) Chemical Fertiliser 20.6 57.0 60.7 (b) Raw Jute 48.8 33.1 16.1 (c) Frozen Fish 0.1 3.8 11.8 (d) Other Manufactured Goods 0.1 0.1 5.9 (e) Leather 12.7 4.1 3.3 (f) Tea 3.2 -- 0.9 (g) Others 14.5 1.9 1.3 Source: Rahman (1997). Note: Computed based on Export Promotion Bureau, Bangladesh. Table 3 Main Items in the Illegal Cross-border Trade between Bangladesh and India (+) Share of Value Trade (US$ Exports/ Commodities Million) Imports Restriction Imports (a) Livestock, Poultry, 252.0 40.0 Restricted Export Fish and Related (India), Products Increased Tariff Live Animals 216.0 34.2 (Bangladesh) (Cattle) (b) Agricultural 78.0 12.4 Products Sugar 35.0 5.6 Banned (c) Processed Food and Tobacco 114.2 18.1 (d) Textiles 76.2 12.1 Sari (Cotton) 50.0 7.9 Banned (e) Other Industrial Manufactures 26.9 4.3 Bicycles and Parts 13.9 2.2 High Tariff + VAT (f) Other Consumer Goods 83.6 13.2 Electronics 43.1 6.8 Total Imports 631.0 100.0 Exports (a) Copper, Brass and Other Metals 61.7 58.0 (b) Fish 35.1 33.0 (c) Synthetic Textiles 4.6 4.3 Lower Import Duty in Electronics, Spares 5.1 4.8 Bangladesh Total Exports 106.0 100.0 Total Illegal Trade 737.0 Source: World Bank (1996). Note: (+) This table is based on NCAER-BIDS field survey conducted in 1994. The survey was conducted simultaneously at Indian and Bangladeshi borders using a common questionnaire and methodology. Table 4 Bangladesh and India's Revealed Comparative Advantage, 1975-1993 SITC 1 and 2 Digits 1975 1980 1985 Bangladesh 0 and 1 Food, Beverages and Tobacco 0.53 1.24 2.04 2 and 4 Crude Materials (Excluding Fuels), Oils and Fats 2.83 2.72 2.25 3 Mineral Fuels and Related Materials 0.01 0.01 0.14 5 Chemicals 0.07 0.19 0.02 7 Machinery and Transport Equipment 0.01 0.05 0.05 6 and 8 Other Manufactured Goods 2.40 2.68 1.07 26 Textile Fibres 17.86 1.88 14.74 65 Textile Yarn and Fabrics 17.12 2.02 13.73 84 Clothing n. a. 0.01 11.38 India 0 and 1 Food, Beverages and Tobacco 2.97 2.43 2.75 2 and 4 Crude Materials (Excluding Fuels), Oils and Fats 1.80 1.70 1.77 3 Mineral Fuels and Related Materials 0.05 0.02 0.33 5 Chemicals 0.38 0.51 0.47 7 Machinery and Transport Equipment 0.26 0.29 0.21 6 and 8 Other Manufactured Goods 1.61 1.72 2.06 26 Textile Fibres 0.94 0.22 0.78 65 Textile Yarn and Fabrics 4.49 0.49 4.10 84 Clothing 2.31 0.04 4.24 SITC 1 and 2 Digits 1990 1991 Bangladesh 0 and 1 Food, Beverages and Tobacco 1.54 1.41 2 and 4 Crude Materials (Excluding Fuels), Oils and Fats 1.25 1.16 3 Mineral Fuels and Related Materials 0.11 0.22 5 Chemicals 0.12 0.23 7 Machinery and Transport Equipment 0.02 0.05 6 and 8 Other Manufactured Goods 2.48 2.64 26 Textile Fibres 8.87 8.26 65 Textile Yarn and Fabrics 6.37 5.37 84 Clothing 12.14 14.38 India 0 and 1 Food, Beverages and Tobacco 1.75 1.42 2 and 4 Crude Materials (Excluding Fuels), Oils and Fats 1.95 1.32 3 Mineral Fuels and Related Materials 0.28 0.19 5 Chemicals 0.85 0.74 7 Machinery and Transport Equipment 0.21 0.16 6 and 8 Other Manufactured Goods 1.99 1.53 26 Textile Fibres 4.04 0.99 65 Textile Yarn and Fabrics 3.82 3.28 84 Clothing 4.51 3.19 SITC 1 and 2 Digits 1992 1993 Bangladesh 0 and 1 Food, Beverages and Tobacco 1.12 1.34 2 and 4 Crude Materials (Excluding Fuels), Oils and Fats 0.97 0.74 3 Mineral Fuels and Related Materials 0.09 0.10 5 Chemicals 0.11 0.29 7 Machinery and Transport Equipment 0.10 0.03 6 and 8 Other Manufactured Goods 2.48 2.74 26 Textile Fibres 7.00 5.61 65 Textile Yarn and Fabrics 4.54 4.44 84 Clothing 13.53 15.74 India 0 and 1 Food, Beverages and Tobacco 1.85 1.90 2 and 4 Crude Materials (Excluding Fuels), Oils and Fats 1.32 1.43 3 Mineral Fuels and Related Materials 0.33 0.27 5 Chemicals 0.79 1.11 7 Machinery and Transport Equipment 0.20 0.19 6 and 8 Other Manufactured Goods 2.18 1.46 26 Textile Fibres 0.83 1.86 65 Textile Yarn and Fabrics 4.39 4.10 84 Clothing 4.31 3.78 Source: Authors' computation based on United Nations (Various Years). International Trade Statistics Yearbook. Table 5 Regression Results of Bangladesh's Imports from India A. Regression Results without Trade Liberalisation Dummy Real Exchange Sample Period Constant Real Output Rate 1974-1988 -37.29 (a) 3.60 (a) -1.62 (3.32) (3.84) (1.34) 1974-1989 -41.07 (a) 3.92 (a) -1.92 (4.50) (5.15) (1.78) 1974-1990 -38.63 (a) 3.71 (a) -1.64 (b) (5.95) (7.02) (3.09) 1974-1991 -39.00 (a) 3.74 (a) -1.68 (b) (7.26) (8.71) (2.49) 1974-1992 -36.75 (a) 3.55 (a) -1.33 (b) (7.64) (9.48) (2.36) 1974-1993 -36.75 3.55 (a) -1.33 (b) (8.39) (10.58) (2.66) 1974-1994 -36.53 (a) 3.53 (a) -1.29 (a) (8.87) (11.34) (2.90) 1974-1995 -37.38 (a) 3.60 (a) -1.38 (a) (9.47) (12.19) (3.22) Predictive Failure Test Sample Period [R.sup.2] DW Statistic 1974-1988 0.58 1.63 F(7,12)=0.26 1974-1989 0.68 1.63 F(6,13)=0.35 1974-1990 0.75 1.62 F(5,14)=0.29 1974-1991 0.81 1.64 F(4,15)=0.40 1974-1992 0.84 1.55 F(3,16)=0.21 1974-1993 0.87 1.59 F(3,16)=0.33 1974-1994 0.89 1.57 F(3,16)=0.66 1974-1995 0.91 1.61 B. Regression Results with Trade Liberalisation Dummy Real Real Exchange Sample Period Constant Output Rate 1974-1988 -34.25 3.36 (b) -1.58 (1.87) (2.25) (1.25) 1974-1989 -39.66 (b) 3.81 (a) -1.91 (2.54) (3.01) (1.71) 1974-1990 -36.56 (a) 3.55 (a) -1.66 (c) (2.97) (3.63) (2.03) 1974-1991 -37.29 (a) 3.61 (a) -1.71 (b) (3.47) (4.27) (2.39) 1974-1993 -34.16 (a) 3.34 (a) -1.39 (b) (3.39) (4.26) (2.27) 1974-1993 -34.3 3.35 (a) -1.40 (b) (3.68) (4.65) (2.50) 1974-1994 -33.97 (a) 3.33 (a) -1.37 (b) (3.85) (4.90) (2.66) 1974-1995 -36.06 (a) 3.50 (a) -1.43 (a) (4.30) (5.43) (2.81) Trade Liberalisation Sample Period Dummy [R.sup.2] 1974-1988 0.08 0.54 (0.22) 1974-1989 0.04 0.65 (0.11) 1974-1990 0.07 0.74 (0.20) 1974-1991 -0.06 0.80 (0.19) 1974-1993 0.09 0.83 (0.30) 1974-1993 0.09 0.86 (0.30) 1974-1994 0.10 0.89 (0.33) 1974-1995 0.05 0.91 (0.18) Predictive Failure Test Sample Period DW Statistic 1974-1988 1.62 F(7,11)=0.24 1974-1989 1.64 F(6,12)=0.33 1974-1990 1.63 F(5,13)=0.27 1974-1991 1.65 F(4,14)=0.36 1974-1993 1.58 F(3,15)=0.21 1974-1993 1.61 F(2,16)=0.34 1974-1994 1.61 F(1,17)=0.70 1974-1995 1.63 Source: As Appendix Table A.1. Notes: + The figures in parentheses below the coefficients are t-ratios. ++ [R.sup.2] = adjusted coefficient of determination; DW = Durbin-Watson statistic. ! (a,b,c,) = significance at the 1,5,10 percent level. Table 6 Weighted Average Tariff Rates (Percent) (+) 1997 1992 1993 1994 1995 1996 (++) For Global Imports 24.14 23.56 24.09 20.79 17.01 17.71 Primary Commodities 23.37 23.21 27.15 17.26 13.16 16.62 Food and Vegetable Products 25.73 22.56 27.20 12.85 10.51 16.67 Mining Products 26.96 31.34 37.58 36.73 34.19 34.84 Animals, Forestry and Others 13.61 15.25 16.30 9.78 4.55 6.43 For Imports From India 31.16 23.48 25.09 13.77 12.05 n.a. Source: Rahman (1997) and Bangladesh (1997). Notes: (+) Data for India are from Rahman (1997), who computed them based on National Bureau of Revenue, Bangladesh. (++) July 1996 to February 1997. n.a. = not available. Table 7 India: Non-tariff Barriers Types of Non-tariff Barriers Sectors Involved (a) Imports of commodities which are Most consumer, intermediate, and permitted only under restrictive capital goods license or in accordance with a public notice. (b) Canalised imports permitted Crude oil and petroleum only through the state trading products, iron and steel, agencies non-ferrous metals, fertilisers, edible oils. cereals, cotton, natural rubber, newsprint, cement, sugar, scrap metals, specified chemicals, electronic products, and drugs (c) Imports permitted only against For example. frozen semen a license on the recommendation allowed only under permission of various concerned departments of department of agriculture (d) Imports which are not allowed Applicable in case of some except in accordance with a non-consumer commodities (for public notice notifying example, fish meal) permission (e) Actual user policy that Almost all types of products disallows imports for resale by which have some scarcity intermediaries premiums (f) Indigenous availability Almost all types of products, criterion which requires a especially restrictive for certificate that a product of consumer goods satisfactory specifications and quality cannot be supplied in a reasonable time by an Indian firm (g) Phased manufacturing programmes Most raw materials and capital in which importing firms agree goods to progressively replace imported materials, parts or components with materials, parts and components produced in-house or by other Indian firms. (h) Restrictions on the use of Mainly capital goods and foreign exchange by firms to technology products pay the royalties and license fees (i) Imports of inputs to For example, crude granite export-oriented units against a which is only applicable for license or in accordance with a export purposes public notice which is issued favouring such imports (j) Government purchase preferences All types of products used by given to domestic firms the central government, state governments and state enterprises (k) Prohibited Some particular commodities and drugs Source: Authors' compilation based on Pursell (1992) and Rahman (1997).