The export-output growth nexus in Bangladesh: a leveraged bootstrap approach
| Date | 21 March 2019 |
| Pages | 196-213 |
| Published date | 21 March 2019 |
| DOI | https://doi.org/10.1108/JABS-09-2017-0159 |
| Author | Abdullahil Mamun,Harun BAL,Emrah Eray AKCA |
| Subject Matter | Strategy,International business |
The export-output growth nexus in
Bangladesh: a leveraged bootstrap
approach
Abdullahil Mamun, Harun BAL and Emrah Eray AKCA
Abstract
Purpose –The study aims to examine the export-led growth (ELG) hypothesis for Bangladesh. The
direction of causalitybetween export and output largely determinesthe success of export-oriented trade
policies. A unidirectional causality running from export to output growth is required according to
the narrowdefinition, while bidirectional causalityis allowed for the broader definition. The study offersthe
causalityinference, both from narrow and broader senses.
Design/methodology/approach –The study uses the bootstrap version of Toda and Yamamoto-
modified causalitytests, a recent development in time series econometrics, robust against theregularity
conditions such as stationarity,properties of integration and cointegrationand constancy of parameters.
It uses monthlysecondary data for the period of 1990-2014.
Findings –Test results suggest a unidirectional positive causal relationship from exports to output
growth, meaning that the policies and strategies supporting exports are promoting output growth and
thereby approve the ELG hypothesis for Bangladesh from the narrowsense. However, the absence of
bidirectionalcausality between export and output growth, necessaryto support the ELG hypothesis from
the broader perspective, discards the conjecture that output growth is reinvigorated through the
probablesecond-round effects of ELG producedfrom output growth to exports.
Practical implications –Lower investmentsin infrastructure,technology and education are reasons for
the absence of ELG from the broadersense. Therefore, directing returns generated from exportsfor the
development of technology, infrastructure and human capital, with regular and continuous revision of
trade-liberalization policies so as to make its exports more competitive in the world market, will help
Bangladeshtrigger the second-round effect of ELG producedfrom output growth to exports.
Originality/value –Beyond the conventional approaches, this is the first contemporary time series
econometricscausality analysis between export andoutput growth of Bangladesh, both from narrowand
broadersenses.
Keywords Bangladesh, Economic growth, Exports, Leveraged bootstrap
Paper type Research paper
1. Introduction
Research on the export-led growth (ELG) hypothesis has been sparked significantly,
particularly after the success of export-promoting trade policies in many developing
economies. The evolution of exportsand its consecutive growth effects on Asian economies
owing to their outward-oriented trade policies play a decisive role in the development of
ELG literature. The growth performance of High-Performance Asian Economies (HPAEs)
was incredible before the Asian Financial Crisis. The HPAEs grew over 10 percent in some
of the years before the crisis owing to their exports of industrial products mostly to the
advanced economies, which makes it apparent that exports could be a possible way to
development. Export, as suggested by the ELG argument, can become the engine of
economic growth by eliminating obstacles in resource allocation, ensuring economies of
Abdullahil Mamun is based
at the Department of
Economics, Cukurova
Universitesi, Adana, Turkey
and the Directorate of
Science Fellowships and
Grant Programmes
(B_
IDEB), The Scientific and
Technological Research
Council of Turkey
(TUBITAK), Ankara, Turkey.
Harun BAL and Emrah Eray
AKCA are both based at
the Department of
Economics, Cukurova
University, Adana, Turkey.
Received 22 November 2017
Revised 1 March 2018
19 June 2018
13 August 2018
Accepted 19 October 2018
PAGE 196 jJOURNAL OF ASIA BUSINESS STUDIES jVOL. 13 NO. 2 2019, pp. 196-213, ©Emerald Publishing Limited, ISSN 1558-7894 DOI 10.1108/JABS-09-2017-0159
scale and promoting efficiencies (Kruger, 1975;Balassa, 1978;Williamson, 1978;Awokuse,
2003;Hossain and Dias Karunaratne, 2004). Export-conducive policies enable domestic
firms to diversify their businesses in foreign destinations and thereby contribute to the
growth potential of the product market of the respective economies, stimulating investment
spending (Al-Marhubi, 2000). Moreover, it can help innovation of new technology because
of competitive pressure in the world market (Rodrik, 1988). In view of Asian developing
economies with spectacular growth performance, the establishment of a diversified export
base with respect to products and destinations and rapid technological transformation
through the initiation of links with major global value chains register the success of their
outward-oriented growth policies. While ELG theory is well established in economic
literature, theory inverts the argument, suggesting economic growth can cause greater
export, and therefore growth-ledexport (GLE) theory has also gained enormous attention of
academics (Ahmad et al., 1997;Chen, 2007;Giles and Williams, 2000;Chow, 1987).
Economic growth of a country attracts more investment in infrastructure and technology,
along with other benefits that might have a favorable impact on the efficiency of production
of the country, and thus can increase export, making its product more competitive in the
world market (Kristjanpoller and Olson,2014). Therefore, whether growth is led by export or
facilitates it is a highlydebated issue in the economic literature.
Though the term ELG was first coinedby Kindleberger in 1962, but it was widely used in the
1970’s after the publication of the World Bank that paid a great deal of attention to the
opening up of developing countries suffering from low growth rates and rent-seeking
activities towards foreign markets(Kızılca, 2006;Struk, 2016). Measures taken for the usage
of factors stimulating exports can contribute to the process of industrial growth and hence
lead to growth desired for an economy (Pandey et al.,2017). Figure 1 illustrates the
mechanism through which trade liberalizing ELG policies can affect the growth of an
economy in terms of benefits expectedfrom export growth.
As illustrated in Figure 2, exports,as a component of aggregate demand, work as a catalyst
for output growth directly ensuringefficiency in resource allocation, economies of scale and
Figure 1 Export transmissionmechanism
Efficiency in
resource allocation
Higher capacity
utilization rate
Economies of
Scale
Use of new
technologies
Increase in foreign
exchange income
Export Growth
Out
p
ut Growth
Productivit
y
Growth
Import of
capital goods
Import of
primary goods
Capital Formation
Complementar y increase in
capital
Investment in infrastructure
and technology
Competitiveness
Source: Developed by authors
VOL. 13 NO. 2 2019 jJOURNAL OF ASIA BUSINESS STUDIES jPAGE 197
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