Testing the Existence of Purchasing Power Parity in Bilateral Trade between Bangladesh and India

Sirajul Islam
Additional contact information
Sirajul Islam: Lecturer in Economics, Department of Economics,, Postal: Bangladesh University of Business , and Technology (BUBT),Dhaka, Bangladesh.

Bangladesh Development Studies, 2013, vol. 36, issue 1, 121-132

Abstract: The paper uses the data of exchange rate and ratio of GDP deflators of Bangladesh and India covering the period 1971-2011 to justify the presence of Purchasing Power Parity (PPP) between the two countries. Unit roots test has been used to confirm the stationarity of the data. Cointegration test is used to verify the existence of a long-run relationship between exchange rate and the relative cost of bundles. While these two variables are not observed to be in equilibrium in the long run, Granger causality test finds no causal relationship between the two. This disequilibrium is further escalated due to the imposition of trade restrictions or other conditions affecting the bilateral trade relationship. These obstacles need to be addressed in order to ensure the stability of the exchange rate and maintain favourable trade relationship based on PPP.

Keywords: Purchasing Power Parity; The Cost of Domestic Bas kets; The Cost of Foreign Baskets; Cointegration (search for similar items in EconPapers)
JEL-codes: C32 C87 F10 F14 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://bids.org.bd/uploads/publication/BDS/36/36-1 ... 0the%20Existence.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:badest:0553

Access Statistics for this article

Bangladesh Development Studies is currently edited by Dr. Binayak Sen

More articles in Bangladesh Development Studies from Bangladesh Institute of Development Studies (BIDS) E-17, Agargaon, Sher-E-Bangla Nagar, Dhaka 1207. Contact information at EDIRC.
Bibliographic data for series maintained by Meftaur Rahman, Cheif Publication Officer, BIDS ().