Investigating the Validity of Export-Led and Import-Led Growth Hypothesis in Bangladesh

Abstract

Examining the contributions of export and import is crucial in the context of an emerging country like Bangladesh that has long been experiencing unfavorable balance of payment. This study attempts to investigate the effects of export and import on GDP of Bangladesh using time series data ranging from 1971 to 2015. Ordinary Least Square is used to determine the possession of export and import on economic growth and Johansen co-integration test in to detect the long- run relationship between the variables. The results indicate that export, import, and economic growth have a long run relationship, and to test this we developed the hypothesis that there exists no long-run relationship. The long run and short run causality results support the unidirectional causality from export to economic growth and bidirectional causality between import and GDP. Overall, the results validate the export-led growth hypothesis but do not support the import-led growth hypothesis. These findings suggest the importance of export promotion and import well-ordered policies for Bangladesh.

Keywords:  Export, Import, Co-integration, VECM, Causality, Economic Growth.