The main purpose of this paper is to identify the major determining factors of Bangladesh trade and to investigate whether the gravity model correctly explains Bangladesh's trade patterns and then estimate the global trade potential of Bangladesh using an augmented gravity model.
Based on a panel data, a dynamic gravity model has used to estimate Bangladesh's trade potential with her major trading partners.
One of the major findings of the paper is that a large part of Bangladesh's potential trade has remained unrealized. The estimated results indicate Bangladesh tends to trade more with larger economies in general and for import developing economies in particular. The rising trade transaction cost is one of the major trading barriers causing high unrealization of trade potential in Bangladesh.
The paper concludes that liberalization of non‐policy barriers will spur Bangladesh's trade, particularly in time of ongoing global economic and financial crisis. Improvement in infrastructure that leads to reduce trade transportation costs should be a necessary step in order to unleash Bangladesh's trade potential.
This paper is the first‐ever attempt to estimate the trade potential of Bangladesh using dynamic gravity model in the pre‐ and post‐global economic and financial crisis period.
