Quantifying the impact of emerging trade issues and non-tariff measures on Bangladesh
Permanent link to Research Commons versionhttps://hdl.handle.net/10289/15750
The overall aim of this thesis is to quantify the impact of emerging trade issues, including non-tariff measures (NTMs), for Bangladesh. This thesis focuses on how trade costs, mostly NTM-related trade costs, impact international trade. NTMs are policy-related trade costs that arise in addition to tariffs, and they are of particular interest as they can constitute a large share of trade costs, particularly for developing countries. My research involves both econometric and computable general equilibrium modelling analysis. I developed a unique NTM dataset for Bangladesh, at the HS 6-digit product level, which is used to econometrically estimate the impact of NTMs on imports. Global computable general equilibrium modelling is then used for quantifying the impact of changes in trade costs. This thesis comprises four applications of trade cost analysis. The first (chapter two) estimates the bilateral trade costs between Bangladesh and its leading trading partners, before investigating the factors that influence Bangladesh’s import costs. To measure implied bilateral trade costs, I first deploy an inverse gravity equation. I then estimate the determinants of import trade costs at the HS 6-digit product level, applying PPML estimation techniques to a gravity model, using a unique new NTM database developed for this thesis. The results show that imports to Bangladesh are related in an expected way to common trade cost proxies and that NTMs negatively impact imports. In the second application, I use the MyGTAP model, an extension of the well-known GTAP model which allows household disaggregation, to analyse the impact of eliminating export subsidies using a computable general framework. Export subsidies can be significant NTMs and important trade policy instruments for many developing countries. The simulations indicate that elimination of export subsidies has a positive effect on GDP. If we reduce the export subsidy by 50 percent and transfer this amount of money from the government to the targeted seven low-income household groups, real GDP may increase by about one percent. Government transfers to households lead to an increase in real income to all households, especially rural households, where incomes on average rise by 2.5 percent. This study suggests there are substantial opportunity costs to export subsidies, and household income could be enhanced by redirecting the spending to more productive channels. In the third application, I again employ the MyGTAP model to estimate the potential market access costs of Bangladesh’s least developed country (LDC) graduation. Bangladesh is an important case study of an emerging trading nation that will graduate from the LDC status to a developing country by 2026. The findings show that if developed countries impose a standard generalized system of preferences (GSP) tariffs while importing from Bangladesh and at the same time Bangladesh eliminates its export subsidies, Bangladesh’s Gross Domestic Product (GDP) may drop by about 0.38 percent and exports could fall by about six percent. The ready-made garment sector could be affected severely, and exports may decline by about 14 percent. The analysis indicates that the income of urban households could decrease by three percent, and household consumption may shrink by about four percent. In my fourth application, I explore how Bangladesh is dealing with balancing its relationship with its two important neighbours, India and China. China now holds the position of Bangladesh’s top trading and investment partner, while India is its second-biggest trading partner. Bangladesh has substantial comparative advantages in the apparel, jute, and leather sectors, and at the same time, both countries offer generous tariff elimination for imports from Bangladesh. However, various NTMs and a lack of trade facilitation present mounting barriers to exporting to the giants’ markets. Computable general equilibrium modeling simulations indicate that if India and China reduce NTMs through increased trade facilitation by 50 percent, Bangladesh’s exports may increase by three percent to these two markets. My thesis contributes to the improved understanding of emerging trade issues for Bangladesh. Using my new NTM dataset, I demonstrate the high costs of NTMs for Bangladesh. I then estimate the opportunity cost of export subsidies and the potential impacts of Bangladesh’s LDC graduation, including on different households. Finally, I highlight the importance of improved trade facilitation between Bangladesh and the huge neighbouring economies of China and India.
The University of Waikato
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