Time Series Behavior of Imports and Exports of Bangladesh: Evidence from Cointegration Analysis and Error Correction Model

Abstract

Bangladesh, a developing economy, contains trade deficit from her very inception. This paper makes an effort to understand the time series behavior of total export and total import of Bangladesh. Unit root tests recognize the existence of random walk in total export and total import time series. Johansen cointegration test reveals long-run equilibrium relationship between these two variables. Getting the existence of cointegration, the study attempts to find causal relationship using error-correction mechanism. Test results unveil bidirectional long term causality and unidirectional short term causality between import and export of Bangladesh. Findings of the study corroborate that Bangladesh is not in violation of its international budget constraints.