BANGLADESH INSTITUTE OF INTERNATIONAL AND STRATEGIC STUDIES

DOES DISTANCE MATTER FOR BANGLADESH’S EXPORTS?

Author: Mahfuz Kabir

DOI Link: https://www.doi.org/10.56888/BIISSj2017v38n2a1

ABSTRACT

Geographical proximity plays an important role in international trade. The gravity model of modern trade theory reveals that the closer the two countries the greater the volume of their bilateral trade. Bangladesh’s export trade has demonstrated impressive performance over the last one and a half decades. The exports are still dependent heavily on Readymade Garments (RMGs) for which the major destinations are distantly located countries, which is opposite to the prediction of the gravity model. Geographical diversification in destination has become an important policy priority for the existing mix of export items in the current and recent past export policies of the country, which is supposed to reverse the current role of distance. Given this context, the present paper is an attempt to examine whether the direction of distance has changed in the country’s export with panel data econometric model. An export weighted distance index has been developed to reveal the relative change in economic geography of Bangladesh for its major export destinations. The empirical results reveal that the policy initiatives of geographical diversification have obtained mixed results, but they have not been significantly successful to reverse the direction of distance in exports.