Economic Metamorphosis: Unravelling the Threads of Trade Liberalisation in Bangladesh’s GDP Evolution

This paper examines the relationship between trade liberalisation and GDP growth in Bangladesh, with a focus on exports. Using a descriptive analysis of the Economic Complexity Index (ECI) from 2002 to 2022, we find that Bangladesh ranks low in export product sophistication and remains heavily dependent on textile and garment exports, with minimal diversification. While trade liberalisation is expected to enhance economic complexity, our findings suggest that this has not been the case for Bangladesh. Instead, trade liberalisation, when coupled with economic complexity, appears to generate higher growth, highlighting the need for diversification and structural transformation. A gravity model incorporating multilateral resistance terms, estimated using high-dimensional fixed effects regression and Poisson Pseudo Maximum Likelihood (PPML) for the period 1980–2022, reveals a statistically significant positive impact of shared colonial history, a negative impact of distance and borders, and mixed effects of a common language. Additionally, our results show a favourable interaction between economic complexity and GDP per capita, suggesting that more complex economies benefit more from trade. Furthermore, OLS regressions using data from 2000 to 2022 indicate a positive but statistically insignificant relationship between economic complexity, exports, and GDP growth, implying that other macroeconomic factors may be driving Bangladesh’s economic expansion. Despite its relatively low economic complexity, Bangladesh has experienced sustained GDP growth, raising the question of what factors contribute to this performance. Our findings suggest that while trade has played a role, other elements — such as foreign direct investment, remittances, and macro-economic stability — may have been key drivers. Policy recommendations emphasise the need for export diversification and increased economic complexity to ensure long-term, resilient economic growth in Bangladesh.