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Trade Patterns of Bangladesh with India and China: An Empirical Evidence of the PPP Theory

Author

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  • Alam, Kazi Ashraful
  • Uddin, Gazi Salah
  • Alam, Md. Mahmudul

    (Universiti Utara Malaysia)

Abstract

The paper examines the existence of the Purchasing Power Parity (PPP) theory for both Bangladesh and its two important trading partners- India and China. The PPP theory is an attempt to explain and perhaps more importantly measure statistically, the equilibrium rate of exchange and its variation by means of the price levels and their variations in different countries. The main purpose of the study is to get a comparative picture of trade balance between Bangladesh (home country) and two major trade partners, i.e. India and China (foreign countries) over a given period of time by using the PPP . The empirical results of the study provides an explanation of how relative inflation rates (changes of price level) between two countries can influence an exchange rate and also critically focuses on the degree of deviation between countries which may help to draw a forecast long-run movements in exchange rates. Finally the results also specify about the trade patterns among the countries and fairly conclude the efficient and beneficial trade partner in respect of Bangladesh with India and China.

Suggested Citation

  • Alam, Kazi Ashraful & Uddin, Gazi Salah & Alam, Md. Mahmudul, 2019. "Trade Patterns of Bangladesh with India and China: An Empirical Evidence of the PPP Theory," OSF Preprints 4rcgw, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:4rcgw
    DOI: 10.31219/osf.io/4rcgw
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    References listed on IDEAS

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    3. Rahman, Mohammad Mafizur, 2005. "Bangladesh-India Bilateral Trade: Causes of Imbalance and Measures for Improvement," Working Papers 1, University of Sydney, School of Economics.
    4. Abuaf, Niso & Jorion, Philippe, 1990. "Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 45(1), pages 157-174, March.
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    6. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72(6), pages 584-584.
    7. Adler, Michael & Dumas, Bernard, 1983. "International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-984, June.
    8. Craig S. Hakkio, 1986. "Interest rates and exchange rates--what is the relationship?," Economic Review, Federal Reserve Bank of Kansas City, vol. 71(Nov), pages 33-43.
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