Capital goods imports push industrial growth, says study

Dhaka,  Monday,   2016-09-19
Published : 19 Sep 2016, 14:30:25 | Updated : 21 Sep 2016, 13:06:56

Capital goods imports spur manufacturing output growth in the long run, says BB study

FE Online Report
Imports of capital goods significantly promote manufacturing output growth in Bangladesh in the long run, though this relationship does not hold water in the short run, according to a working paper recently released by Bangladesh Bank (BB).

Three officials of the central bank prepared the paper, titled ‘Does the Import of Capital Goods Spur Manufacturing Output Growth in Bangladesh?’, using 30 years of annual data from fiscal year 1984-85 to 2013-14.

The study, authored by Md Abdul Wahab, Nurun Nahar Sultana and Md Rezwanul Hoque, finds that that capital goods take a longer period to make the production process commence. 

Hence, the manufacturing industry in Bangladesh requires capital goods and raw materials to be imported to continue the production in order to meet both domestic and foreign demand, it says. 

The study recommends diversification of exports and policies to promote and develop infrastructure, energy and power supply. 

To encourage private investment in the country, it suggests greater opening up of the economy, and financial liberalisation to enforce greater integration of financial market segments and market resilience.

The paper also says that it requires much more attention of the central bank to liberalise the policy rate and exchange rate channels. 

Econometric tools titled ‘Johansen cointegration method’ and ‘vector error correction (VEC) techniques’ have been applied in conducting the study.


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