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The Agricultural Terms Of Trade In Bangladesh: An Econometric Analysis Of Trends And Movements, 1952–2006

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  • AKHAND AKHTAR HOSSAIN

Abstract

This paper investigates the trends and movements of agricultural prices, industrial prices and the agricultural terms of trade in Bangladesh with annual data for the period 1952–2006. The ADF and KPSS tests results suggest that both agricultural and industrial prices have a unit root while the agricultural terms of trade is trend‐stationary. These results remain unchanged if allowance is made in the unit root test for the possibility of a structural break during 1971–1975 (when Bangladesh gained independence from Pakistan and experienced economic shocks) by applying the two‐step procedure of Perron (1989). A simple Nerlovian agricultural price determination model is specified within the framework of aggregate demand and aggregate supply. The Johansen cointegration test results for the periods 1953–2006 and 1973–2006 suggest that there exists a cointegral relationship between agricultural prices, industrial prices, per‐capita real income and the real exchange rate between the Bangladeshi taka and the US dollar under the restriction that per‐capita real income and the real exchange rate are ‘long‐run forcing variables’ in the sense of Pesaran and Shin (1995), and Pesaran, Shin and Smith (1996). The paper estimates a four‐variable vector error‐correction (VEC) model and conducts an impulse response analysis for the post‐independence period, 1973–2006.

Suggested Citation

  • Akhand Akhtar Hossain, 2008. "The Agricultural Terms Of Trade In Bangladesh: An Econometric Analysis Of Trends And Movements, 1952–2006," Australian Economic Papers, Wiley Blackwell, vol. 47(1), pages 38-52, March.
    • Handle: RePEc:bla:ausecp:v:47:y:2008:i:1:p:38-52
    DOI: 10.1111/j.1467-8454.2008.00328.x
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    References listed on IDEAS

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    1. Prebisch, Raúl, 1950. "The economic development of Latin America and its principal problems," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 29973, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    2. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
    3. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
    4. Raaj Kumar Sah & Joseph E. Stiglitz, 1987. "Price Scissors and the Structure of the Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(1), pages 109-134.
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    Cited by:

    1. Bernhard G. Gunter & Valeria Vargas Sejas, 2017. "Free Falling Terms of Trade Despite Industrialization: The Case of Bangladesh," Bangladesh Development Research Working Paper Series (BDRWPS) BDRWPS No. 33, Bangladesh Development Research Center (BDRC).
    2. Gulzar Ali & Ghulam Mustafa & Said Zamin Shah, 2020. "Performance of Agriculture Sector in Foreign Trade of Pakistan," Global Economics Review, Humanity Only, vol. 5(1), pages 12-23, March.
    3. Sujan Piya & Akira Kiminami & Hironori Yagi, 2010. "Evaluating the Impact of Geographic Concentration on Nepalese Agricultural Export," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 11(2), pages 207-222, September.

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