THE AGRICULTURAL TERMS OF TRADE IN BANGLADESH: AN ECONOMETRIC ANALYSIS OF TRENDS AND MOVEMENTS, 1952-2006

Akhand Akhtar Hossain

Australian Economic Papers, 2008, vol. 47, issue 1, pages 38-52

Abstract: This paper investigates the trends and movements of agricultural prices, industrial prices and the agricultural terms of trade in Bangladesh with annual data for the period 1952-2006. The ADF and KPSS tests results suggest that both agricultural and industrial prices have a unit root while the agricultural terms of trade is trend-stationary. These results remain unchanged if allowance is made in the unit root test for the possibility of a structural break during 1971-1975 (when Bangladesh gained independence from Pakistan and experienced economic shocks) by applying the two-step procedure of Perron (1989). A simple Nerlovian agricultural price determination model is specified within the framework of aggregate demand and aggregate supply. The Johansen cointegration test results for the periods 1953-2006 and 1973-2006 suggest that there exists a cointegral relationship between agricultural prices, industrial prices, per-capita real income and the real exchange rate between the Bangladeshi taka and the US dollar under the restriction that per-capita real income and the real exchange rate are 'long-run forcing variables' in the sense of Pesaran and Shin (1995), and Pesaran, Shin and Smith (1996). The paper estimates a four-variable vector error-correction (VEC) model and conducts an impulse response analysis for the post-independence period, 1973-2006. Copyright 2008 The Author.

Date: 2008

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