The Asymmetry of Export-Led Growth: Evidence from Bangladesh’s Ready-Made Garment Sector
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This study examines the impact of Ready-Made Garment (RMG) export income on the economic growth of Bangladesh, within the framework of the Export-Led Growth (ELG) hypothesis. The RMG sector, which contributes over 80% of the country’s total export earnings and more than 11% of its GDP, serves as the primary engine of Bangladesh's economic growth. Utilizing an extended neoclassical growth model, this research employs the nonlinear Autoregressive Distributed Lag (NARDL) methodology to assess the asymmetric effects of positive and negative shocks in RMG export income on real GDP growth over the period 1994–2024. The empirical results demonstrate significant asymmetry in the relationship, revealing that negative shocks to RMG export earnings exert a more substantial contractionary impact on GDP compared to the expansionary effects of equivalent positive shocks. Specifically, a 1% decline in RMG exports leads to a 0.39% reduction in GDP, whereas a 1% increase in RMG exports results in only a 0.11% increase in GDP. Furthermore, the long-run analysis confirms a stable cointegrating relationship among GDP, RMG exports, foreign direct investment (FDI), gross fixed capital formation (GFCF), labor force, and exchange rates, thereby supporting the validity of the ELG hypothesis for Bangladesh. The study highlights the critical role of the RMG sector in driving Bangladesh's economic performance and underscores the vulnerability of the economy to external shocks within this sector. The findings provide valuable insights for policymakers, suggesting the need for strategic measures to enhance the sector's resilience, diversify export markets, and attract sustained foreign investment, thereby ensuring long-term economic stability and growth.
Abstract
This study analyzes the impact of Ready-Made Garment (RMG) export income on Bangladesh’s economic growth within the framework of the Export-Led Growth (ELG) hypothesis. The RMG sector, accounting for more than 80% of total export earnings and over 11% of GDP, serves as the principal engine of the country’s economic expansion. Employing an extended neoclassical growth model and the nonlinear Autoregressive Distributed Lag (NARDL) approach, the study investigates the asymmetric effects of RMG export shocks on real GDP growth during the period 1994–2024. The empirical findings reveal significant asymmetries: a 1% decline in RMG exports reduces GDP by 0.39%, while a 1% increase raises GDP by only 0.11%. This indicates that negative shocks exert a greater contractionary effect than the expansionary effect of positive shocks. The long-run analysis confirms a stable cointegrating relationship among real GDP, RMG exports, foreign direct investment (FDI), gross fixed capital formation (GFCF), labor force, and the exchange rate, thereby providing robust evidence in support of the ELG hypothesis in Bangladesh. Furthermore, Granger causality tests demonstrate a bidirectional causal relationship between RMG exports and GDP, implying that past RMG export income significantly predicts GDP growth and vice versa. In addition, FDI inflows Granger-cause RMG exports, while garment export growth significantly predicts increases in capital formation and labor supply. Overall, the results underscore the critical role of the RMG sector in shaping Bangladesh’s macroeconomic performance and highlight the economy’s vulnerability to sector-specific external shocks. Policy implications stress the importance of enhancing sectoral resilience, diversifying export markets, and promoting sustained foreign investment to secure long-term economic stability.