International Journal of Economics & Management Sciences

Determining Long Term Relationship & Response to Shocks for Imports Exports and GDP of Bangladesh

Md. Arafat Rahman¹ and Tanvir Khan²

Abstarc :

This paper investigates causal relationship between exports, imports and economic growth (GDP) in Bangladesh over the period 1961-2009 using Cointegration, Error Correction Model, and VEC Granger causality. Bangladesh, a developing economy of the third world, contains trade imbalance from her very inception. This paper makes an effort to understand the time series behavior of the dynamic relationship among total imports, total exports and GDP of this country. Through unit root test we found that all three variables are non stationary. Johansen cointegration test reveled the existence of one long run equilibrium relationship among these variables. The analysis of short run dynamics of the vector error correction model found out though, total exports and GDP of Bangladesh is approaching in the right track, total imports is moving away from the equilibrium state with a significant speed. Again, impulse response analysis traced out the response of shocks in one variable to the other variables as well as to the same variable. The adequacy of the fitted model is also justified through residual analysis.

Key Word :
Exports; Imports; Economic growth; Granger causality; Vector error correction model

Volume 2, Number 3, March 2012 , ISSN 2162-6359