Trade and investment potential among BCIM countries: prospects for a dynamic growth quadrangle

• DOI: https://doi.org/10.1108/14770021211239677
• Date: 15 June 2012
• Published date: 15 June 2012
• Pages: 163-190
• Author: Mohammad Masudur Rahman,Chanwahn Kim
• Subject Matter: Economics

Trade and investment potential

among BCIM countries: prospects

for a dynamic growth quadrangle

Mohammad Masudur Rahman

Microcredit Regulatory Authority, Dhaka, Bangladesh, and

Chanwahn Kim

Department of Indian and ASEAN Studies,

Graduate School of International and Area Studies,

Hankuk University of Foreign Studies, Seoul, South Korea

Abstract

Purpose – The purposeof this paper is to explore thetrade and investment potentialunder the ambit of

sub-regional cooperation comprising the four contiguous countries of Bangladesh, China, India and

Myanmar (BCIM).

Design/methodology/approach – The study addressed both intra-regional and intra-industrial

trade, applying a dynamic gravity model of bilateral trade flows by product group of BEC’s 1-digit

product classification, to set a panel data for the period of 1992-2009.

Findings – The analysis reveals that higher trade transaction costs and tariff between each pair of

countries reduce the trade flow. One of the major findings of the paper is that a large part of BCIM’s trade

has remained unrealized and the trade transaction cost is one of the major trading barriers prohibiting

the growth of BCIM intra-regional trade. The paper concludes that liberalization of non-policy barriers

will spur BCIM’s trade, particularly in a time of ongoing global economic and financial crisis.

Practical implications – The study reinforces that improvement in infrastructure that leads to less

trade transportation costs should be a necessary step in order to realize BCIM’s trade potential. The

paper concludes that liberalization of non-policy barriers will spur BCIM’s trade and economic

cooperation, particularly in time of ongoing global economic and financial crisis.

Originality/value – This paper is the first-ever attempt to estimate the trade potential of BCIM

countries using dynamic gravity model.

Keywords Bangladesh,China, India, Myanmar, Trade, Investment,Costs, Tariffs, Gravity model

Paper type Research paper

1. Introduction

Most of the trade theories address a qualitative question of identifying the trade pattern and

how much trade in goods and services are remained as another important concern. The

understanding of the determining factors of trade is important task in policy formulation.

The thriving empirical study can conjecturethevolumeofunrealizedtradeflowsand

suggest a desirable trade partner and market. Bangladesh, China, India and Myanmar

(BCIM) forum, which is a Track-II initiative[1] floated in 1999 comprising BCIM, is an effort

The current issue and full text archive of this journal is available at

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This paper was presented at the Korea Institute for International Policy (KIEP), Seoul, on June 28,

2011 and at the Soganag University, Seoul, Korea, on June 20, 2011. The authors would like to

thank the anonymous commentators for their valuable comments. This work was supported by

Hankuk University of Foreign Studies Research Fund of 2012, Seoul, Korea.

Trade among

BCIM countries

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Journal of International Trade Law

and Policy

Vol. 11 No. 2, 2012

pp. 163-190

qEmerald Group Publishing Limited

1477-0024

DOI 10.1108/14770021211239677

primarily from the non-government section of the countries who intends to influence

policymakers, business people and government representatives to boost-up the regional

cooperation by transferring it into growth quadrangle or regional economic development

area (REDA). Recently, during the visit of the Bangladeshi Prime Minister in Beijing

declared a joint communique

´and agreed to actively participate in and promote the BCIM

regional economic cooperation process (March 19, 2010 Financial Express). In view of the

ongoing pace of globalisation formation of sub-regional forums or growth zones that could

play an important role from the perspective of strengthened global integration of the

member countries of the growth zones. Deeper integration among the member countrie s

could help create wide possibilities of business opportunities in many diversified areas.

Available studies indicate several advantages emanating from regional or sub-regional

forums or growth zones. These advantages include, among others:

.easy market access;

.widened scope for realising complementarities among countries of the grouping;

.economic development within and outside the zone utilizing efficient use of

resources; and

.transfer of technology.

The idea of growth zones in the literature of Development Economics and the success of

existing growth zones-Mekong Sub-region (GMS) Growth Triangle, Southern China

Growth Triangle and the Growth Triangle comprising the Johor State of Malaysia,

Singapore and the Riau Islands of Indonesia – strongly inspired the non-government

section of these countries to lodge a debate to form a growth zone comprising these four

countries. It is argued that formation of growth zones will initiate faster economic

growth process by increasing the possibility of efficient use of the region’s unused

resources, ESACP (2002). Resource endowments in the BCIM region are different from

one another, which also supports the pre-condition of the formation of this type of

regional integration. China and India have comparatively better technology, more

efficient labor force, and improved physical and commercial infrastructure. On the other

hand Bangladesh and Myanmar have unskilled and semi-skilled labor force, basic, and

intermediate technology. The sectoral composition of GDP of these countries also

confirms these complementarities of economic activities among these countries, which

shows industrial sector is dominating in China (52 percent of total GDP in FY 2009),

agriculture sector in Myanmar (50 percent of total GDP in FY 2009) and services sector in

India and Bangladesh (56 and 49 percent of total GDP in FY 2009). Along with strong

cultural affinity, the closer geographical proximity and presence of huge informal border

trade among the countries, give a strong optimism for forming a regional trading block

comprising these four countries.

The gravity model has become a great powerhouse of trade research in recent years

because of the model’s empirical success. There are plenty of empirical studies explicitly

focused trade flows and trade barriers in a gravity model framework (Tinbergen, 1962;

Poyhonen, 1963; Wilson and Otsuki, 2005; Baldwin and Taglioni, 2006; Helble et al.,

2007; Hoekman and Nicita, 2008; Duval and Utoktham, 2009). Gravity model has also

been used to estimate the bilateral trade potential (Batra, 2004; Chan, 2005; Kalirajan and

Bhattacharya, 2007; Christos, 2007; De, 2009). One of the advantages of gravity model is

that it can provide a convincing analytical framework for various trad e policy options.

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