Impact of Exchange Rate Regime Change on Bangladesh RMG Exports to the USA and the EU

Abstract Bangladesh adopted floating exchange rate system in May 2003. After that regime change, the country has faced a relatively higher volatility of nominal exchange rate than previous regime. Economic theories on volatility suggests that trade flow is adversely affected in response of fluctuation of the exchange rate. Bangladesh is the second largest readymade garments (RMG) exporter in the world and it is the main export product of the country. In this research, Difference in Difference (DID) model introduced by Card and Krueger (1994) is used for the yearly data of 1983 to 2022 to discern this impact of volatility on the RMG exports of Bangladesh. The result shows that RMG exports is negatively affected due to the exchange rate volatility and the estimated figure shows that on Bangladesh‘s average RMG exports has been lessened to the USA and EU regions by US$1.04 billion and 1.02 billion, respectively, owing to the volatility incurred by the regime change. Therefore, as volatility obviously has hindered RMG exports, the central bank of Bangladesh should stay alert to avoid high volatility of the nominal exchange rate to keep the RMG exports flow uninterrupted.