Analyzing the Evolving Trade Dynamics of Bangladesh with India and China: An Empirical Study

This study uses annual time series data to investigate the trade dynamics between Bangladesh and its two primary trading partners, India and China. Our analysis employs various metrics, including export and import intensity indices, intra-industry trade index, Export Specialization Index, and the revealed comparative advantages (RCA) approach. Finally, we use the ARDL approach to examine the long-run relationship between the structural transformation of the economy and trade dynamics. The trade intensity indices reveal a nuanced pattern in Bangladesh’s trade relationship with India and China. The Export Specialization Index indicates that Bangladesh exhibits significant export specialization in commodity groups such as animal or vegetable fats and oils and their cleavage products with India, and live animals and animal products, as well as raw hides and skins-leather and articles thereof with China. Furthermore, our examination of the impact of changes in the structure of the Bangladeshi economy on trade dynamics underscores a notable shift. As Bangladesh undergoes industrialization, China emerges as a prominent trade partner, supplying capital machinery and related products, thereby replacing India’s role as a source of primary goods and food items. The comprehensive analysis of these indices underscores the need to enhance intra-industry trade levels with major partners. Additionally, there isa call for emphasis on sectors with high specialization that possess the potential to reduce the trade deficit. Diversifying Bangladesh’s export baskets is also crucial for achieving a more favorable trade balance. The study provides a comprehensive understanding of the trade dynamics of Bangladesh with India and China, aiming to inform policy decisions, facilitate business strategies, and contribute to a broader understanding of economic interactions in the region.