Trade Patterns of Bangladesh with India and China: An Empirical Evidence of the PPP Theory
Journal of Regional Economic Studies, Vol. 2, pp. 26-34, 2009
10 Pages Posted: 27 Mar 2017
Date Written: 2009
The paper examines the existence of the Purchasing Power Parity (PPP) theory for both Bangladesh and its two important trading partners - India and China. The PPP theory is an attempt to explain and perhaps more importantly measure statistically, the equilibrium rate of exchange and its variation by means of the price levels and their variations in different countries. The main purpose of the study is to get a comparative picture of trade balance between Bangladesh (home country) and two major trade partners, i.e. India and China (foreign countries) over a given period of time by using the PPP. The empirical results of the study provides an explanation of how relative inflation rates (changes of price level) between two countries can influence an exchange rate and also critically focuses on the degree of deviation between countries which may help to draw a forecast long-run movements in exchange rates. Finally the results also specify about the trade patterns among the countries and fairly conclude the efficient and beneficial trade partner in respect of Bangladesh with India and China.
Keywords: Purchasing Power Parity, Price Level, Exchange Rates, Bilateral Trade Balance
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