Does Economic Growth Spillover More from the Eastern than the Western Countries?

What is it about?

Bangladesh is an important member of the Bay of Bengal and the Andaman Sea (BoBAS) rim countries. The partners of growth in this region include traditional partners like eth USA, the UK and some newly emerging partners such as the European Union (EU), Germany, India and China. This article examines the pattern of growth dependence of Bangladesh vis-à-vis its 11 major trade, remittance, foreign aid and FDI partner countries by using vector autoregressive process (VAR) and annual data ranging from 1972 till 2015. Out of 11 partners selected in this study only three of them named the USA, India and Japan have significant growth spillover effect on the economy of Bangladesh. Most of the newly added countries in the list of partnership with Bangladesh are yet to offer any significant growth spillover effect. Only four and a half decade of exploration in economic interaction is not enough to yield sustained relationship be it trade, aid, remittance, foreign aid or FDI. A robustness check by using high frequency monthly data keeps the result intact. In all the three tests, we find that only Japan has two-way growth relationship with Bangladesh, which is trade and concessional loan-driven channel. Variance decomposition analysis identifies the USA, India (a member of BoBAS) and Japan as the prime driver of our growth counting around 32 per cent of the contribution whereas remaining 68 per cent originates from Bangladesh’s own soil.

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Why is it important?

From the existing literature, it is revealed that the spillover studies on developing countries in general and Bangladesh in particular as a member of BoBAS region are missing whereas many developing countries including Bangladesh are becoming globalised through increasing trade, remittance, foreign aid, investment and other channels. The process is perceived to be one-way in some cases and two-ways in other cases. To fill up this gap, we aim to investigate the potential relevance of growth dependence of Bangladesh vis-à-vis its major partner countries. We examine the volume of export, import, remittance, foreign aid and FDI of Bangladesh from 1972 to 2015 and based on these volumes, we select 11 countries with whom Bangladesh shares a significant trade, aid, FDI and remittance relationship.

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