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A theory is appropriate as long as it fits into the fact; when a theory doesn't fit in the fact, it's wise to walk with the fact.

Thursday, July 12, 2012

Sluggish export growth

Bangladesh's export grew only by 5.9% in FY12, compared to 40.5% in FY11. So, it missed the government's target (16.0% over FY11). In fact, year-on-year export growths in the last 4 months of FY (starting in March 2012) were negative (-7.2%, -7.1%, -4.2%, and -3.1%).

As economic crisis has been taking place in US and Europe, the demand for Bangladeshi products from those economies remained low. Moreover, production costs increased significantly due to higher energy prices including electricity and higher banks' interest rate.

It seems, Bangladesh's export fell into a growth trap (picture below). Since FY04, the export growth rate were never able to cross the mark of the previous year. In fact, the trend of export growth since FY06 has been falling. So, the policymakers need to work more, especially those who think themselves as trade expert.

Monday, July 9, 2012

GDP growth and Inflation relationship

Well, Policy Research Institute (PRI) of Bangladesh conducted a research lead by Dr Sadiq Ahmed  mainly on the relationship between GDP growth and inflation in the context of Bangladesh.

Here is the news link on the issue.

What did the study find then?

1. There is a long-run negative relationship between GDP and inflation;
2. While seeking a threshold of inflation in Bangladesh, it finds that a 4.0%-5.0% inflation rate is the threshold to provide the flexibility of resource mobility for growth in Bangladesh (against the central bank's official claim of having a inflation threshold of 6.0%-8.0%).

What's new in this study?

Nothing significant. A Working Paper (WP0604: Inflation and Economic Growth in Bangladesh: 1981-2005) of the Policy Analysis Unit (PAU), Bangladesh Bank has done the similar approach back in 2005. What are the results of that study?

1. There exists a statistically significant long-run negative relationship between inflation and economic growth for Bangladesh;
2. The estimated threshold model suggests 6.0% as the threshold level (i.e., structural break point) of inflation above which inflation adversely affects economic growth.

FYI: Link of the WP0604 (Bangladesh Bank website-publications-research work-working papers).

It's not clear whether both the attempts (Bangladesh Bank and PRI) recognized the very first and previous attempt (PAU) in this area of economic research in Bangladesh.

Sunday, July 8, 2012

Inflation exceeded projection!

Average annual rate of inflation in FY12: 10.6%, the highest average inflation rate after 1985!

According to the government’s projection, average annual rate of inflation in FY12: 7.5%, meaning 3.1% higher than projection.

Thursday, July 5, 2012

Consolidating and Accelerating Exports in BD

World Bank publishes a report 'Consolidating and Accelerating Exports in Bangladesh' written by Md. Abul Basher et al. The following issues came up in the report: 

  • Bangladesh not only needs to consolidate existing strengths in basic garments, but also plan for the future.
  • While garments will continue to dominate exports, encouraging diversification will help guard against shocks and maintain export growth in the longer term.
  • Export growth can accelerate, provided critical bottlenecks are addressed, including trade logistics, skill shortages, and compliance with Government labor standards.