Exchange rate volatility and aggregate export growth in Bangladesh

The long and short-run determinants of Bangladeshi export growth are examined. These are modelled as depending on world trade volume, Bangladeshi and world export prices, and exchange rate volatility. Several techniques are used to estimate and test hypotheses about the cointegration space of these variables. We find that there are two plausible restricted cointegrating vectors: one appears to be an export demand while the other is suggestive of an export supply. These are then imposed on an error correction model. Estimates suggest that in the long run, Bangladeshi export growth is driven by the volume of world trade, and is negatively, and inelastically related to the volatility of Bangladeshi exchange rates. Once these long-run effects are accounted for, it is found that none of the variables significantly explains any short-run changes in export growth.

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