Bangladesh Bank Training Academy Journal

Abstract

The purpose of this paper is to investigate the determinants of export and imports flows to Bangladesh with SAARC member countries using panel data estimation technique and applying with the Gravity Model Approach. Constructing two gravity models separately for exports and imports of Bangladesh with other SAARC countries, the study was conducted based on a Panel data set comprised of other 7 member countries of SAARC for total 11(eleven) years from 2006 to 2016. Being the workhorse of empirical international trade and its robustness with versatility makes the Gravity model essential tool to analyze policy issues regarding trade. Due to academic popularity of Gravity model, it has been used in the paper to assess the bilateral trade relation between ountries. The Gravity Model has been estimated using three techniques of panel data Pooled OLS, fixed effects and random effects. Fixed effect model is used to find the impact of variables over time and random effect model is used to capturethe effect of invariant variables. Applying F-test, Brusch-Pegan LM test and Hausman test, the study finds out, fixed effect is suitable for the export model and random effect for the import model. The estimated result shows that the significant determinants of Bangladesh's exports with SAARC member countries are: GDP, Real exchange rate, Distance and Border and except Border all other variables are found significant for imports.