Monetary analysis of import structure of Bangladesh: 1962-78
Date
1980-05
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Abstract
This paper presents a simple monetary approach to the determination of import structure of Bangladesh. This study is based on time series data ranging from 1962 to 1978. The results strongly indicate the usefulness of this approach in explaining the behavior of imports with resect to domestic monetary variables. Increases in domestic money supply significantly influence imports of all categories (capital goods and consumer goods). It is evident from the result that increases in money supply and increase in imports are positively correlated.
It has been argued that increases in domestic credit to either the private or the public sector affect adversely the balance of payments through increased import demand. In many countries, especially in Bangladesh, increases in domestic credit by the commercial banks to the private sector are used generally to finance imports, often consumer goods. Thus there is an explicit relationship between changes in domestic credit and the balance of payments. Domestic credit has an adverse multiplier effect on trade balances. In case of Bangladesh the magnitude of credit multiplier on trade balance is quite high.
The policy makers concerned with achieving economic growth while minimizing pressures on the balance of payments are interested in the magnitude of the multiplier of domestic credit on the balance of payments and in the adequacy of the use of domestic credit (monetary policy) as a policy tool to bring about a change in the balance of payments position of
the economy.