The Foreign-Income and Real-Exchange-Rate Elasticities of Bangladesh Exports

Bangladesh began implementing trade-reform policies in the mid 1980s, leading to a gradual change in its anti-export-policy. Since then the share of exports in her GDP has been rising steadily with the economy growing at about 5 percent per annum. This growth is associated with structural change in the country’s export composition favouring non-traditional exports, namely garments and frozen foods. This paper specifies and estimates an aggregate export-demand function; deploys Pesaran’s bounds-testing approach to estimate export-elasticities of foreign income and the exchange rate; and tests for the stability of the estimated function. The empirical results, based on annual data for the period 1973-2010, suggest a long-run relationship between real exports and export-weighted foreign real income. Similarly, real exports and the real effective exchange rate of the taka are found to be related. Finally, the results suggest that the dynamic behaviour of exports possesses an error-correction representation. The CUSUM and CUSUMSQ tests suggest no significant instability in the export-demand function. However, the recursive and rolling-regression coefficients indicate that the export-demand function has undergone some structural change since the early 1990s. This is reflected in the decreasing sensitivity of real exports vis á vis the exchange rate. JEL classification: C32, F11 Keywords: Exports’ Elasticities, Pesaran’s Bounds Test, Export-demand Stability, Banglades

Rural Labour Market Developments, Agricultural Productivity, and Real Wages in Bangladesh, 1950–2006

This paper provides an overview of recent developments in rural labour markets in Bangladesh and also examines the trends and movements of agricultural productivity and real wages with annual data for the period 1950–2006. The paper links the movements of agricultural real wages to macroeconomic developments in general and agricultural development in particular. As part of empirical investigation, the paper develops a simple model of agricultural real wages that depend on agricultural productivity. In order to examine the long-run relationship between agricultural productivity and real wages, the paper applies the Autoregressive Distributed Lag Bounds testing approach. Empirical results suggest that there exists a long-run relationship between agricultural productivity and real wages, and that agricultural productivity can be treated as a ‘long-run forcing variable’ in explaining agricultural real wages. In the dynamic specification of real wages, the coefficient on oneperiod lagged error-correction term bears the expected negative sign and is significant. The forecasting ability of the error correction model is satisfactory with respect to the level or the percentage change of real wages. The overall results are consistent with the findings of earlier studies that agricultural productivity is a key determinant of real wages in Bangladesh.Rural Labour Markets, Agricultural Wages, Agricultural Productivity, ARDL Bounds Testing Approach, Bangladesh

Asset Returns and Economic Uncertainty: A Cross-Country Analysis

This paper examines the effects of economic uncertainty (idiosyncratic vis-à-vis common uncertainty) on equity, bond and housing returns across both developed and developing countries. Building on International/Intertemporal Capital Asset Pricing Model (ICAPM), we find that economic uncertainty exerts negative effects on equity, bond and housing returns. When we decompose economic uncertainty into two parts: idiosyncratic and common economic uncertainty, we find that ‘idiosyncratic uncertainty’ affects equity, bond and housing returns more negative and pronounced than ‘common’ uncertainty, where investors do not demonstrate differences in responses to the different dimensions of uncertainty. Moreover, there are weak lagged effects of economic uncertainty on asset returns. Additionally, we find negative uncertainty premium for equity more persistently in bullish rather than bearish market conditions. Our results are also robust for low-frequency data and inclusion of covid period in the analysis. Our findings have implications for policy makers in both developed and emerging markets regarding clear communication of economic policies

Central banking and monetary policy in Muslim-majority countries

This book reviews key aspects of central banking and monetary policy in selected Muslim-majority countries. While reviewing country-specific experiences and issues in inflation and monetary policy, and analysing them from an historical context, emphasis is given to the evolution of Islamic banking and finance and the consequent institutional developments for maintaining price stability. One recurring theme is that, although Islamic banking and finance may have created some complexities, it remains consistent with Classical monetary theory and has created opportunities for improving the infrastructure of central banks and monetary policy to maintain both price and economic stability. The introduction of Islamic banking and finance strengthens the argument for low and stable inflation and rule-based monetary policy. Monetary policy frameworks in these countries include exchange-rate pegging, monetary targeting and inflation targeting under varied restrictions on capital flows. Macroeconomic problems under these regimes are also highlighted and their policy implications drawn

Trade liberalization and import-demand behavior in Bangladesh, 1974-2008

From the early 1980s onwards, Bangladesh has undertaken a series of trade-liberalization measures. In combination with the steady rise in real income over the past two-and a half decades, these measures have raised the country's import-orientation and brought structural change in the composition of imports in favor of consumer goods and materials for consumption. This paper investigates import-demand behavior in Bangladesh within the Autoregressive-Distributed-Lag (ARDL) modeling framework using annual data for the period 1974-2008. The empirical results suggest the presence of a well-behaved import-demand function, in the senses that (1) Bangladesh's imports are income-elastic and price-inelastic and (2) there is no evidence of instability in the Bangladesh import-demand relationship

Inflation and inflation volatility in Australia

This paper highlights the problem of inflation volatility in Australia and deploys quarter-on-quarter CPI-inflation data over the period 1949q3–2013q4 to investigate the proposition of a feedback relation between inflation and inflation volatility in this country. The paper adopts the generalised autoregressive conditional heteroskedastic (GARCH) modelling technique to estimate simultaneously the conditional mean and the conditional variance of inflation and their interrelations in a dynamic context. A bivariate Granger-causality test is then conducted to determine whether a causal relation exists between inflation and inflation volatility, as measured by the estimated conditional variance of inflation. The empirical results suggest the presence of a feedback relation between inflation and inflation volatility with a positive (adverse) impact of inflation volatility on the rate of unemployment. A second finding of the paper, based on the preferred exponential GARCH (1,1) model, is that inflation shock has an asymmetric impact on inflation volatility. A negative (downward) inflation shock is found to have a larger effect on the log of the conditional variance of inflation than the effect of a positive inflation shock of the same magnitude. These are the key findings of the paper. The concluding section summarises its other findings and draws some of the implications for Australian monetary policy

Bank sentral dan kebijakan moneter di asia pasifik

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Hindu-Muslim separateness in Bengal: a review of some historical issues from a contemporary Bangladesh Muslim standpoint

Although the Indian media’s claim that Bangladesh is well on the way to becoming a ‘failed state’ is not consistent with the latter’s economic, social and political record since 1971, it makes sense when such propaganda is interpreted as part of an Indian strategy to undermine Bangladesh’s existence as a sovereign nation. Starting from this assumption, the present paper argues that the re-emergence of a prominent Islamic theme within the matrix of Bangladesh’s culture and politics should be seen as much more than a knee-jerk response to India’s hegemonic design toward Bangladesh. Muslim identity in Bangladesh should be viewed as a ‘natural phenomenon’ that has been in the making at least since the eighteenth century. In order to establish this proposition, the paper traces the evolution of Islam in east Bengal as part of an ‘agricultural civilisation’ in which an egalitarian ideology of Muslim-ness was propagated and patronised by West and Central Asian Muslim traders, scholars and rulers in the context of a hierarchical ritualistic Hindu society that looked to keep the Muslim community downtrodden for both economic and political reasons

THE TIME SERIES PROPERTIES OF THE DOMESTIC AGRICULTURAL TERMS OF TRADE AND THE EXTERNAL NET BARTER TERMS OF TRADE IN BANGLADESH, 1952-2005

This paper examines the time series properties of the domestic agricultural terms of trade, the external net barter terms of trade and the ratio of the agricultural to the external terms of trade in Bangladesh with annual data for the period 1952-2005. The ADF and the KPSS tests results suggest that the time series of these variables do not have a unit root. The Perron (1989) test results, which makes allowance for a structural break in the series during 1972-1975 because economic and political shocks, suggest that although the domestic agricultural terms of trade does not have a unit root, the null hypothesis of a unit root in both the external terms of trade and the ratio of the agricultural to the external terms of trade cannot be rejected at the conventional 5 per cent level. Having obtained such mixed results, these series are assumed trend-stationary for examining any dynamic relationship between them Accordingly, the domestic agricultural terms of trade and the external terms of trade are detrended and a Granger-causality test is conducted between them. Although the test results are sensitive to the lag-length, they suggest that there is a bi-directional causality between them. This finding casts doubt about the view that the domestic agricultural terms of trade in Bangladesh can be considered a policy instrument that remains under the control of policy makers, who might have used it to 'squeeze agriculture' for industrialisation under an import-substituting strptegy of development until the early 1980s