Devaluation and Export Growth in Bangladesh A Comparison with Synthetic Counterfactual


Authors : Mohammad Anamul Huq

Volume/Issue : Volume 9 - 2024, Issue 12 - December

Google Scholar : https://tinyurl.com/ymz4xa7y

Scribd : https://tinyurl.com/4mc6t282

DOI : https://doi.org/10.5281/zenodo.14591128

Abstract : This paper examines the relationship between currency devaluation and export performance in Bangladesh, focusing on the role of broader macroeconomic factors. While devaluation theoretically enhances export competitiveness by lowering relative prices in international markets, its actual effects in Bangladesh reveal a context-dependent relationship. This study investigates the moderating impact of variables such as interest rate, inflation, government expenditure, foreign direct investment (FDI), and trade indices, along with sector-specific dynamics in garments, pharmaceuticals, leather, and jute. Using the Synthetic Control Method (SCM) complemented by regression analysis, this research compares Bangladesh’s export trends against synthetic benchmarks and regional comparators such as India and Bhutan over the period 1991 to 2020. Regression analysis shows that devaluation has a positive but modest effect, with a coefficient of 0.0780833, while broader variables like government expenditure and export value index exhibit positive associations with export performance. Conversely, SCM analysis highlights negative gaps between Bangladesh’s actual export performance and its synthetic counterpart, often indicating underperformance due to policy misalignment and economic shocks. The final government consumption expenditure, for instance, demonstrates a significant negative impact, reflecting structural challenges in trade competitiveness. Analysis of beyond-devaluation factors underscores their crucial role in shaping export outcomes. Positive contributions from export indices and government expenditure highlight the importance of value addition and strategic public investment. However, negative trends associated with FDI and import dependency reveal persistent structural inefficiencies. Sectoral insights show that while the garments industry benefits from labor cost advantages, it faces input dependencies that limit its gains. Pharmaceuticals and leather require substantial technological and regulatory support, while jute demonstrates greater resilience due to lower import reliance. The findings conclude that devaluation alone cannot drive sustainable export growth. Its impact is intertwined with broader structural, fiscal, and trade-specific variables, necessitating an integrated approach. Recommendations include fostering FDI, enhancing governance, upgrading infrastructure, and promoting innovation to create a resilient and competitive export sector. By embedding devaluation within a comprehensive policy framework, Bangladesh can better address its export challenges and achieve inclusive and sustainable economic growth.

Keywords : Currency Devaluation, Export Performance, Beyond-Devaluation Factors, Synthetic Control Method, Regression Analysis, Sectoral Insights, Macroeconomic Stability.

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This paper examines the relationship between currency devaluation and export performance in Bangladesh, focusing on the role of broader macroeconomic factors. While devaluation theoretically enhances export competitiveness by lowering relative prices in international markets, its actual effects in Bangladesh reveal a context-dependent relationship. This study investigates the moderating impact of variables such as interest rate, inflation, government expenditure, foreign direct investment (FDI), and trade indices, along with sector-specific dynamics in garments, pharmaceuticals, leather, and jute. Using the Synthetic Control Method (SCM) complemented by regression analysis, this research compares Bangladesh’s export trends against synthetic benchmarks and regional comparators such as India and Bhutan over the period 1991 to 2020. Regression analysis shows that devaluation has a positive but modest effect, with a coefficient of 0.0780833, while broader variables like government expenditure and export value index exhibit positive associations with export performance. Conversely, SCM analysis highlights negative gaps between Bangladesh’s actual export performance and its synthetic counterpart, often indicating underperformance due to policy misalignment and economic shocks. The final government consumption expenditure, for instance, demonstrates a significant negative impact, reflecting structural challenges in trade competitiveness. Analysis of beyond-devaluation factors underscores their crucial role in shaping export outcomes. Positive contributions from export indices and government expenditure highlight the importance of value addition and strategic public investment. However, negative trends associated with FDI and import dependency reveal persistent structural inefficiencies. Sectoral insights show that while the garments industry benefits from labor cost advantages, it faces input dependencies that limit its gains. Pharmaceuticals and leather require substantial technological and regulatory support, while jute demonstrates greater resilience due to lower import reliance. The findings conclude that devaluation alone cannot drive sustainable export growth. Its impact is intertwined with broader structural, fiscal, and trade-specific variables, necessitating an integrated approach. Recommendations include fostering FDI, enhancing governance, upgrading infrastructure, and promoting innovation to create a resilient and competitive export sector. By embedding devaluation within a comprehensive policy framework, Bangladesh can better address its export challenges and achieve inclusive and sustainable economic growth.

Keywords : Currency Devaluation, Export Performance, Beyond-Devaluation Factors, Synthetic Control Method, Regression Analysis, Sectoral Insights, Macroeconomic Stability.

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