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Impact of RTA and PTA on Bangladesh’s Export: Application of a Gravity Model

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Abstract

As part of its growth strategy, Bangladesh instituted a trade liberalization process in the early 1990s which gained momentum in later years. Trade grew from 24.4 to 45% of GDP between 1980–81 and 2007–08, an indicator of increased liberalization as well as the growing importance of the external sector in Bangladesh. Apart from its unilateral liberalization, Bangladesh participates in three different regional trade agreements (RTAs): the South Asian Free Trade Agreement (SAFTA), the Asia Pacific Trade Agreement (APTA) and the Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation Free Trade Area (BIMSTEC FTA). In addition, Bangladesh signed preferential trade agreements (PTAs) with the member countries of the Developing 8 (D8). Because of the growing importance of RTAs, this study investigates their contribution to the export flows from Bangladesh using the gravity model that has become the primary tool for estimating the trade effects of regional integration. Regression results of bilateral exports for 40 countries from 1992–2009 indicate two crucial aspects. Firstly, all the RTAs consistently maintained statistically significant negative signs, except the BIMSTEC FTA and SAFTA, which showed insignificantly positive and insignificantly negative effects respectively. Secondly, the intensity of negative effects and the level of significance have shown a declining trend as the status of those blocs has changed from political or economic cooperation agreements to preferential agreements and from preferential agreements to free trade agreements. Thus, the intensity of tariff liberalization and the degree of sectoral coverage seem to be the important determinants of the RTAs’ performance. Therefore, experts expect that full-fledged implementation of FTA provisions and the elimination of all tariff and non-tariff barriers might result in a higher degree of integration.

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Notes

  1. Statistics on RTA were obtained from the WTO website www.wto.org. Accessed 20 February 2011.

  2. In Wei and Frankel (1995).

  3. Table 1 lists the member countries. Afghanistan was granted membership in 2005.

  4. The sensitive lists of Bangladesh contain 1254 items for Non-LDCs and 1249 items for LDCs; India’s lists contain 868 items for Non-LDCs and 480 items for LDCs; Pakistan’s list contains 1169 items, Sri Lanka’s list contains 1065 items; list of Nepal contains 1299 items; the Maldives’ list contains 671 items; Afghanistan’s list contains 1072 items and Bhutan’s list contains 157 items.

  5. Participants of APTA are listed in Table 1. Membership was granted to China in 2001. Thailand was one of the signatories of this agreement but did not ratify it. Hence, the amendment report of the Bangkok Agreement does not recognize Thailand as one of the “Original Participating States” (ESCAP 2005).

  6. The third round of negotiations was completed in 2006, and the fourth round began in 2007.

  7. Details of the Framework Agreement on the Promotion, Protection and Liberalization of Investment is available at: http://www.unescap.org/tid/apta/fa_inv

  8. Member countries of BIMSTEC are listed in Table 1. Myanmar was granted membership in December 1997 while Bhutan and Nepal were admitted in 2003.

  9. The member countries are listed in Table 1.

  10. Information on the number of export products can be accessed at www.epb.org

  11. The sample countries included Australia, Austria, Bangladesh, Belgium, Brazil, Canada, China, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Iran, Ireland, Italy, Japan, South Korea, Kuwait, Malaysia, Netherlands, Norway, Pakistan, Poland, Portugal, Russia, Saudi Arabia, Singapore, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Turkey, UAE, UK, and USA.

  12. The magnitude of the coefficient on distance is smaller than that usually found in the gravity studies. However, the similar size of coefficient was reported by Brulhart and Kelly (1999); Hassan (2001); and Rahman (2003).

  13. Kandogan (2008) found significantly negative sign.

  14. [{exp (-2.27) -1}*100]. Other values are calculated in the same way.

  15. Hassan (2001) and Kandogan (2008) also reported significant negative effects of SAARC. However, other empirical studies on SAPTA identified somewhat mixed results, such as insignificantly positive impact (Kandogan 2008; Tumbarello 2006); insignificantly negative impact (Rahman 2003); and significantly negative impact (Hassan 2001).

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Acknowledgements

The authors are grateful to the two anonymous referees for their constructive comments and insightful suggestions on an earlier version of the paper. We are also thankful to the participants at the17th Annual South Dakota International Business Conference, USA, October 01, 2010 and the 5th International Conference on Regional Innovation and Cooperation in Asia, Japan, November 23, 2010, for their valuable comments. A part of this research is financially supported by the Ministry of Education, Culture, Science and Technology of Japan (Grant Number 235303020004).

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  1. University of Dhaka, Dhaka, 1000, Bangladesh

    Muhammad Shariat Ullah

  2. Ritsumeikan University, 1-1-1 Noji-higashi, Kusatsu, Shiga, 525-8577, Japan

    Kazuo Inaba

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  1. Muhammad Shariat Ullah
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Ullah, M.S., Inaba, K. Impact of RTA and PTA on Bangladesh’s Export: Application of a Gravity Model. J Ind Compet Trade 12, 445–460 (2012). https://doi.org/10.1007/s10842-011-0116-3

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  • DOI: https://doi.org/10.1007/s10842-011-0116-3

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