Trade Agreements and Export Performance of Bangladesh: A Gravity Model Analysis

Abstract

This article evaluates the effects of trade agreements like BIMSTEC, SAFTA, APTA, EU PTA, OIC, and D-8 PTA on the export performance of Bangladesh. It also examines 24 years of bilateral trade relations between Bangladesh and its 52 key trading partners, ranging from 2000 to 2024, evaluating the effects of trade agreements on economic growth. The study puts together an extensive panel dataset comprising 3,568 observations to capture the multilateral resistance factors by considering two-way trade flows among all countries involved in the cited trade agreements. The study also uses the Poisson Pseudo-Maximum Likelihood (PPML) fixed effects estimator method recommended by Silva and Tenreyro (2006), as it is considered the optimal approach for gravity-based analyses. Findings of the study reveal mixed outcomes concerning the alignment of Bangladesh`s trade patterns with the predictions made by the gravity model. The regression analysis, using the PPML fixed effects estimator, shows that the GDP of the importing country positively influences exports, but trade agreement’s impact on Bangladesh`s GDP is comparatively less significant. The research also finds a positive relationship between distance and exports, emphasizing the role of preferential trade policies and existing networks. Although sharing a common language and being geographically close demonstrate mixed outcomes, trade agreements markedly enhance exports, especially with island nations like Australia, Sri Lanka, China, Hong Kong, Japan, etc. From the study, it was also found that Bangladesh sells more to the richer countries which is consistent across both OLS and PPML models, as the correlation between GDP and exports is significantly positive. Linguistically similar countries have formal and informal restrictions on trade with Bangladesh, hence, the geographical closeness does not guarantee increased trade because of regional barriers and informal trading behaviors. The study highlights the significance of trade agreements in improving market access and offers strategic policy recommendations as Bangladesh prepares for its LDC graduation. Finally, the results support the fact that FTAs, PTAs, or other agreements have a considerable effect on improving trade depending on Bangladesh’s capability, product diversification and market access.