Determinant of Export Diversification Strategy of Bangladesh: Vector Error Correction Model (VECM) Approach

Abstract

The current study has been conducted in the year 2017 to explore the determinants of export diversification strategies of Bangladesh during 1976-2016 using Vector Error Correction Method (VECM). Annual time series data ranging from 1976 to 2016 on total exports, Foreign direct investment (FDI), national savings, industry value added in percentage of GDP, growth of GDP and official development assistance (US currency) has been taken from data storage of world bank. Augmented Dickey Fuller (ADF) test has been employed to check the stationary properties of the raw data. Moreover, the Johenson Cointegration test has been employed to discover the long-term relationship among the data series the result showed that taken data have long ran relationship. At next step, VECM model was used to investigate the dynamic association between the variables and the result showed that there is long run causality running from the FDI, GDP Growth, savings, official development and industry value to Export and there is long run causality running from the export, FDI, GDP growth, saving and official development to industry value. Granger causality test has been run to check the short run relationship among the variable. The Lagrange Multiplier (LM) test ensures that our model is out of serial correlation problem. At last Jarque-Bera test also ensure that all model except FDI and GDP growth, the residual are normally distributed.