Background of the Study

Trade is an integral part of the total developmental effort and national growth of all economies
including Bangladesh. It particularly plays a central role in the development plan of Bangladesh
where foreign exchange scarcity constitutes a critical bottleneck. Export trade can largely meet
foreign exchange gap, and export growth would increase the import capacity of the country
that, in turn, would increase industrialization, as well as overall economic activities.
Bangladeshs import needs are substantial; hence the need to rapidly increase exports is
immediate. In order to finance the imports, to reduce the countrys dependence on foreign aid,
and also to develop overall economic condition the Government of Bangladesh has been trying
to enhance foreign exchange earnings through planned and increased exports. However, the
global trade scenario has exposed structural limitations of the Bangladesh economy, posing a
variety of challenges for the country that has underdeveloped technology and a low capital base.
In this study, I would like to discuss the relationship between the export diversification and
economic growth in case of Bangladesh and the composition, performance and trends of export
of Bangladesh.

Objectives of the Study

The broad objective of this paper is to determine the relationship between export diversification
and economic growth in case of Bangladesh. Besides this broad objective, this paper also
attempts to reveal few other specific facts of export diversification in Bangladesh as follow:
1. To assess the concepts of Export Development and Export Diversification
2. To evaluate what the theory says about Export Development and Diversification.
3. To find empirical evidence that shows on the links (correlates) between export
diversification, exports growth, and economic growth.

Rationale of the Study

Nowadays, export diversification has become one of the most important economic objectives of
development strategies in the developing countries like Bangladesh. For various reasons, such as
preventing instability in export prices of primary products in global markets and consequently,
reducing fluctuations in exchanges of them compared with the industrial goods, producing
dynamic goods, producing dynamic benefits resulted from exporting various goods and
increasing productivity of production factors may increase the rate of the economic growth. This
study is to find, how export impact on our economy and necessity of export diversification for
the economic growth in Bangladesh.

Scope of the Study

The analysis is based on last 20 years data of country and commodity wise export from
Bangladesh.
Some specific variables like GDP, GDP growth, Export Growth, RGCF, Degree of openness,
number student of Secondary School enrolment, population are taken for the determination of
correlation between the export diversification and economic growth in case of Bangladesh.

Limitation of the Study

The report is based on secondary data over a 20 years period.
There is inconsistence of amount among the sources of data
The 20 years sample data may not represent population properly.

Literature review
Conventional trade theories suggest that a country should specialize in the production of goods
and services in which it has a comparative advantage. Modern trade theory however contends
that international trade need to be accommodated with modern industrial characteristics ; the
features of which are increasing returns to scale(IRS) and imperfect competition ( Helpman and
Krugman,1985) .A country cannot solely depend on particular industrial activities and should
be more proactive to offset national factor disadvantages (Arip et al,2010).Export diversification
can play a crucial role in fuelling an increase in national output thus leading to higher
economic growth and development.
Bachetta et.al (2007), have investigate the role of export diversification as a shock absorber.
They found that for lower income countries product diversification plays an important role in
lowering income volatility. The richer the country will be, the less important the role of product
diversification and the more important the role of geographical diversification.
Interestingly, Herzer(2004) also found a long run statistical relation between growth and exports
diversification based on time series data from Chile. Compatible with this findings, Arip et al.
have examined the relationship between exports diversification and economic growth in
Malaysia using time-series data. It has been noticed that exports diversification plays a
significant role to economic growth in Malaysia.
Samen (2010) provides empirical evidence in the literature that links between exports
diversification, exports growth and overall growth. The more diversified are countrys export, the
less volatile its earning will be. Gutierrez de Pineres and Ferrantino (1997) and Herzer and
Nowak-Lehmann (2006) analyze the link between exports diversification and economic growth
in Chile, where both studies find evidence that Chile has benefited from diversifying its exports
products.
Lederman and Maloney (2003) find a negative relationship between exports concentration and
GDP per capital growth. In a study Khawlah Ali and nahil Saqfalhait (2013) in Jordan and other
selected Arab countries found that there was no significant effect on Jordans economic growth.
In another study done by Sanjay Matadeen on Mauritiuss economy (2011), In this study it was
found that there is an inverse relationship between the export concentration and the economic

growth variables. The implication of this finding is that export diversification will lead to higher
economic growth.
Agosin(2007) provides an evidence that exports diversification has stronger impact on the
growth of income per capital if a countrys aggregate export grow as well. He also argues that
long run growth is associated with learning to produce an expanding range of goods and Growth
is viewed as being the result of adding new products that embody productivity change to the
production and export basket so that countries that have few local sources of productivity growth
benefit by opening new sectors that have higher factor productivity.
Economic diversification is initially favored because as income increases,
it is expected that economic agents will demand a larger variety of consumer goods and
producers invest on a wide range of sectors based on the portfolio argument as developed by
Acemoglu and Ziliboti (1997).
A number of channels through which export diversification can influence economic growth have
been exposed. The empirical literature largely points toward a positive relationship between
export diversification and economic growth.