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Free Falling Terms of Trade Despite Industrialization: The Case of Bangladesh

Listed author(s):
  • Bernhard G. Gunter

    ()

    (American University and Bangladesh Development Research Center (BDRC))

  • Valeria Vargas Sejas

    (Bangladesh Development Research Center (BDRC))

Considering Bangladesh’s successful industrialization, Bangladesh’s sharply deteriorating terms of trade (ToT) are a puzzle for the original Prebisch-Singer hypothesis. The Prebisch-Singer hypothesis suggested that countries exporting primary products will experience deteriorating ToT, while countries exporting manufacturing goods will experience ToT improvements. This paper provides an empirical review of Bangladesh’s ToT from 1980 to 2013. It reviews the theoretical literature explaining the Prebisch-Singer hypothesis and uses econometric analyses to determine some of the key factors for Bangladesh’s ToT deterioration. It shows that exchange rate devaluations and increases in export quantity have a negative impact on the ToT, while improvements in export quality have some positive impact on the ToT. In the case of Bangladesh, the problem however is that export quality has been decreasing, contributing to sharply falling ToT. The key policy implication is that export promotion policies need to be refined, focusing also on export quality, not only export quantity

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File URL: http://www.bangladeshstudies.org/files/WPS_no33.pdf
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Paper provided by Bangladesh Development Research Center (BDRC) in its series Bangladesh Development Research Working Paper Series (BDRWPS) with number BDRWPS No. 33.

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Length: 21 pages
Date of creation: Sep 2017
Handle: RePEc:bnr:wpaper:33
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Web page: http://www.bangladeshstudies.org/
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  1. Darity, William A, Jr, 1990. "The Fundamental Determinants of the Terms of Trade Reconsidered: Long-run and Long-period Equilibrium," American Economic Review, American Economic Association, vol. 80(4), pages 816-827, September.
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  9. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
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  11. Bloch, Harry & Sapsford, David, 2000. "Whither the Terms of Trade? An Elaboration of the Prebisch-Singer Hypothesis," Cambridge Journal of Economics, Oxford University Press, vol. 24(4), pages 461-481, July.
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  16. 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, 03.
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  19. Sarkar, Prabirjit & Singer, H. W., 1991. "Manufactured exports of developing countries and their terms of trade since 1965," World Development, Elsevier, vol. 19(4), pages 333-340, April.
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