Is trade an automatic stabilizer for Bangladesh’s economy?

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ImageThe global economic downturn and the consequent pessimistic outlook for exports in developing countries like Bangladesh have reinvigorated voices for protectionism. Even pro-trade minds have vented their skepticism about trade liberalization, as if the punch of the ongoing crisis could be shielded with the help of an embargo on trade with the rest of the world!

Such thoughts, derived from the gloomy prospects of exports, ignore the potential benefits drawn through the imports and disregard the lessons learned from history- that economic isolation leads to further impoverishment.

It’s true that the global economic downturn has reduced the demand for our exports in the developed world, as a result their prices have gone down. But the same is true for our imports as well. The obvious example is petroleum. The sky-high petroleum price has decreased since the beginning of the global economic crisis, which has helped oil importing countries like Bangladesh. In fact, it is because of the reduction of petroleum price in the global market, that the Government of Bangladesh can increase subsidies on petroleum and fertilizer.

When global economy stumbles, global demand for goods goes down as well. Consequently, commodity prices go down. Thus depending on the type of the commodity, trade can act as an automatic trade balance stabilizer leaving no serious economic problem in the external balance of the country, contrary to what has been argued by many in the recent days.

Due of the openness of the economy that allows both imports and exports to respond to any types of external shock, the balance of trade has not deteriorated because of the economic crisis. Rather, a significant improvement was observed with growth in the gap of trade decreasing by 28.4% between July 2007 and January 2009.

Thus the openness of Bangladesh economy has played the role of not only an automatic stabilizer but an automatic reducer of the trade gap during this crisis, thanks to the progress made so far towards trade liberalization. What do you think could be done to further reduce this trade gap?


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