APPLYING GRAVITY MODEL TO ANALYZE TRADE ACTIVITIES OF BANGLADESH

Abstract

Bangladesh agonizes from a long-lasting deficit in its potential trade. However, it has been trying to overcome this deficit since independence in 1971. Due to political and many other reasons, it could not trade at its potential level but the trade with its partner countries is not negligible. According to the World Bank and Asian Development Bank said that Bangladesh is currently one of the fastest growing economies and it has become possible because of its trade with other countries. The most significant factors accountable for this unfavorable trade balance of Bangladesh is going to be examined in this paper. In this paper gravity model has been applied to analyze trade activities of Bangladesh & 35 countries between time duration of 2000 to 2011. Panel data has been used on worldwide trade of Bangladesh which is taken from the International Trade Center, World Integrated Trade Solution, International Monetary Fund and World Bank. The final results expose that the economic size of Bangladesh & foreign partners, the distance between countries and exchange rate have significant effects on Bangladesh‟s bilateral trade flows with its partnering 35 countries.