The Effects of Global Price

Pressures on Bangladesh's
Current Account
 A Report
on
“The Effects of Global Price Pressures on Bangladesh's Current Account”

Course Title: Business Statistics

Course code: F-503

Submitted To:

Dr. M. Jahangir Alam Chowdhury

Professor
Department of Finance, EMBA Program
Faculty of Business Studies
University of Dhaka

Submitted By:
Nahid Hasan
Student ID: 20244042
Executive MBA Program
Department of Finance
University of Dhaka

Date of Submission: 8th October, 2024.

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Executive Summary:

Rising global commodity prices, as captured by the Global Price Index (GPI), exert a powerful
downward pressure on Bangladesh's Current Account Balance (CAB). Our analysis, using
regression techniques, confirms a moderate negative relationship, with higher GPI associated
with lower CAB. However, the model explains only 37% of the variation, hinting at influences
beyond GPI. Domestic factors, trade dynamics, and financial flows likely play crucial roles.
Further research incorporating these aspects is vital for understanding the complex forces
shaping Bangladesh's external balance and navigating the volatile global market.

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Contents
Executive Summary: ........................................................................................................ III
Section I: INTRODUCTION ................................................................................................. 1
A. Background ................................................................................................................... 1
1. Brief Overview of Bangladesh's Economy: ............................................................................................. 1
2. Importance of the Current Account Balance: ......................................................................................... 2
3. Significance of the Global Commodity Index: ......................................................................................... 2

B. Objectives of the Study .................................................................................................. 3

4. Understand the relationship between Current Account Balance and Global Commodity Index ........... 3
5. Analyze the impact of global commodity prices on Bangladesh's economic indicators ........................ 4

Section II: Data and Methodology ..................................................................................... 5

A. Data Collection .............................................................................................................. 5
6. Sources of data for Current Account Balance and Global Commodity Index ......................................... 5
7. Timeframe of the data ............................................................................................................................ 5

B. Variables ....................................................................................................................... 6
8. Definition and explanation of Current Account Balance ........................................................................ 6
9. Definition and explanation of the Global Commodity Index .................................................................. 6

C. Statistical Tools ............................................................................................................. 7

10. Explanation of correlation analysis ..................................................................................................... 7
11. Explanation of regression analysis ...................................................................................................... 8

Section III: Analysis and Results ........................................................................................ 9

A. Descriptive Statistics...................................................................................................... 9
12. Mean, median, standard deviation of the variables ........................................................................... 9
13. Time trends and patterns ................................................................................................................. 10

B. Correlation Analysis .................................................................................................... 12

14. Correlation coefficient ...................................................................................................................... 12
15. Interpretation of correlation results ................................................................................................. 14

C. Regression Analysis ..................................................................................................... 14

16. Regression model specification ........................................................................................................ 14
17. Interpretation of regression results .................................................................................................. 15

Section IV: Interpretation of Findings .............................................................................. 15

Section V: Limitations of the Study .................................................................................. 16
Section VI: Conclusion ..................................................................................................... 16
Reference: ...................................................................................................................... 17

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Section I: INTRODUCTION
A. Background
1. Brief Overview of Bangladesh's Economy:
Bangladesh's economic journey is a tale of remarkable transformation. Rising from the ashes
of war and poverty, it has become a vibrant developing market economy, the second largest in
South Asia. This meteoric rise can be attributed to several key factors.

At the heart of Bangladesh's success lies its young and burgeoning population. This
demographic dividend translates to a vast pool of enthusiastic workers, fueling the nation's
productive engine. Furthermore, Bangladesh has carved a niche for itself as a global leader in
ready-made garment (RMG) exports. Its factories churn out clothes worn by millions across
the globe, contributing over 80% of the country's foreign exchange earnings.

Another pillar of Bangladesh's economic prosperity is the steady flow of remittances sent by
its citizens working abroad. These hard-earned dollars nourish domestic consumption and
stimulate investment, fueling a virtuous cycle of growth. Additionally, prudent fiscal and
monetary policies have fostered macroeconomic stability, providing a supportive environment
for businesses to thrive.

However, like any dynamic economy, Bangladesh is not without its challenges. The recent
surge in global inflation, exacerbated by supply chain disruptions, has pushed prices beyond
tolerable limits, threatening the hard-earned gains in living standards. Furthermore, an
overreliance on imported energy leaves Bangladesh vulnerable to the whims of international
price fluctuations, exacerbating energy shortages.

The ever-widening trade gap, with imports significantly surpassing exports, presents another
hurdle. This imbalance strains the balance of payments, impacting the country's foreign
exchange reserves. Additionally, the government struggles to raise sufficient revenue to match
its burgeoning expenditure, limiting resources for crucial public services and infrastructure
investments.

Economic inequality continues to be a pressing concern. While poverty has declined overall, a
worrying gap persists between urban and rural areas, as well as between different income
groups. Addressing this disparity will be crucial for inclusive and sustainable development.

Despite these challenges, Bangladesh's future burns bright. Forecasts predict continued
economic growth, with GDP expected to rise by 6% in 2023 and 6.5% in 2024. The
government's commitment to infrastructural development through megaprojects like the Padma
Bridge and Dhaka Metro promises to enhance connectivity and spur economic activity.
Moreover, initiatives aimed at diversifying the economy beyond RMG, with investments in
sectors like pharmaceuticals and light engineering, hold immense potential. While challenges

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remain, the nation's inherent strengths and dynamic leadership offer a compelling reason for
optimism.

2. Importance of the Current Account Balance:

In international economics, the current account balance plays a pivotal role, acting as a nation's
economic scorecard with the rest of the world. It simply reflects the difference between the
value of goods and services a country exports (earns) and those it imports (spends). A surplus
represents income exceeding expenses, while a deficit signifies spending outpacing earnings.

For any economy, especially those striving for development, a balanced current account is
immensely significant. A positive balance indicates a trade surplus, attracting foreign
investment that fuels infrastructure projects, creates jobs, and bolsters economic growth. This
surplus also enhances currency stability, making imports cheaper and boosting purchasing
power for citizens. Moreover, it strengthens a nation's ability to manage external debt,
preventing a vicious cycle of dependence on foreign loans.

However, a negative balance paints a less rosy picture. It signals an overreliance on imports,
draining valuable resources and potentially undermining currency stability. This dependence
on foreign goods leaves the economy vulnerable to external shocks like fluctuating commodity
prices or global economic downturns, further exacerbating the deficit. Consequently, managing
the current account balance becomes a delicate dance, requiring strategic policies like
diversifying exports, promoting domestic production, and creating a business-friendly
environment to attract foreign investment.

Understanding the current account balance is crucial for analyzing a nation's economic health
and its future trajectory. Maintaining a healthy balance acts as a vital pillar for sustainable
development, ensuring a nation can walk the tightrope between international trade and long-
term economic prosperity.

3. Significance of the Global Commodity Index:

The Global Commodity Index serves as a comprehensive measure encompassing various goods
worldwide. Within this index are everyday essentials such as oil, gold, and wheat, forming a
representative snapshot of global commodity prices. This metric is of paramount importance
as it elucidates the fluctuations in the prices of these essential items over time.

Essentially, the Global Commodity Index provides an overview of the average price
movements of these commodities. A surge in the index implies an overall uptrend in
commodity prices, signifying heightened demand. Conversely, a decline in the index indicates
a general decrease in prices, which can be indicative of a slowdown in economic activity.

The significance of the Global Commodity Index lies in its role as a barometer of economic
health. A rising index suggests a robust and expanding economy due to increased demand for

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commodities. Conversely, a declining index may signal economic deceleration, prompting
businesses and investors to adjust their strategies accordingly.

For investors and businesses, the Global Commodity Index is a crucial tool for making
informed decisions. A rising index may prompt businesses to anticipate higher costs, while
investors might identify opportunities in commodity markets. Conversely, a falling index may
lead businesses to implement cost-cutting measures, and investors may reassess their
investment portfolios.

The Global Commodity Index functions as a global economic indicator, providing valuable
insights into the economic landscape by reflecting the trends in essential goods and resources.
Its utilization in decision-making processes by businesses and investors underscores its
significance as a key metric in navigating the complexities of the global economy.

B. Objectives of the Study

4. Understand the relationship between Current Account Balance and
Global Commodity Index
The Current Account Balance (CAB) and the Global Commodity Index (GCI) engage in a
delicate dance, influencing each other's movements and impacting national economies
worldwide.

CAB, the meticulous accountant of international trade, measures the difference between a
country's export earnings and import expenditures. A positive balance signals a net inflow of
wealth, while a negative one indicates a net outflow.

GCI, on the other hand, acts as a global price gauge, tracking the value of essential resources
like oil, metals, and agricultural commodities. Its fluctuations mirror the ebb and flow of global
demand and supply.
Their relationship is intricate and multi-faceted, with both direct and indirect effects:

Direct Influences:
For heavily Import reliant countries like Bangladesh, Rising GCI inflates import
costs, potentially worsening CAB. Conversely, a falling GCI can ease import burdens and
improve CAB. Conversely, for commodity-exporting nations, a rising GCI directly translates
to higher export earnings and a healthier CAB. However, a falling GCI can dampen export
revenues and impact CAB negatively.

Indirect Influences:
A rising GCI often signals global economic expansion, potentially boosting demand for various
goods and services, leading to improved CABs for exporting nations. However, sustained
inflationary pressures from a high GCI can eventually hinder growth and trade, negatively
impacting CABs.

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Aising GCI can attract foreign investment to commodity-producing countries, positively
influencing their CABs. Conversely, a falling GCI might trigger capital flight and worsen
CABs. Strategic government policies, such as export subsidies or import controls, can mitigate
the impact of GCI fluctuations on CAB, providing a degree of control in navigating global
market shifts.

In essence, understanding the intricate relationship between CAB and GCI is paramount for
policymakers and businesses alike. By recognizing their interconnectedness, informed
decisions can be made to navigate global market dynamics and ensure a healthy balance of
economic well-being.

5. Analyze the impact of global commodity prices on Bangladesh's

economic indicators
Bangladesh's economy, vibrant and dynamic, is not immune to the fluctuations of global
commodity prices. These fluctuations act like an invisible hand, pushing and pulling on various
economic indicators, shaping the country's economic trajectory.

1. Trade Balance:
Impact: Rising global commodity prices, especially for essential imports like fuel and
food, inflate Bangladesh's import bill, widening the trade deficit. Conversely, falling prices
narrow the deficit, potentially leading to a trade surplus for resource-based exports like jute
and leather.

Consequences: A widened trade deficit can put pressure on the Bangladeshi Taka, potentially
leading to devaluation and making imports even more expensive. Conversely, a trade surplus
can strengthen the Taka, boosting purchasing power and potentially attracting foreign
investment.

2. Inflation:
Impact: A rise in global commodity prices feeds directly into Bangladesh's inflation
rate, driving up the cost of essential goods and services. Conversely, falling prices can ease
inflationary pressures, improving affordability for consumers.

Consequences: High inflation erodes household purchasing power, impacting domestic

consumption and potentially dampening economic growth. Conversely, lower inflation creates
a more stable economic environment, encouraging investment and long-term growth.

3. Economic Growth:
Impact: Rising global commodity prices can have a mixed impact on Bangladesh's economic
growth. Higher export earnings for resource-based sectors can provide a boost, while higher
import costs and inflation can drag down growth. Conversely, falling prices can reduce import
bills and inflationary pressures, but also dampening export earnings.

Consequences: Sustained strong economic growth depends on maintaining a balance between

the positive and negative impacts of global commodity fluctuations. This requires
implementing well-targeted policies and diversification strategies.

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4. Government Budget:
Impact: Rising global commodity prices increase import-related government
expenditures, putting pressure on the budget. Conversely, falling prices can free up resources
for other investments and social programs.

Consequences: Managing the impact of global commodity prices on the budget requires
flexibility and strategic allocation of resources. The government needs to adopt measures to
protect the most vulnerable and prioritize essential services.

The relationship between global commodity prices and Bangladesh's economic indicators is
complex and multifaceted. While opportunities exist for growth, significant challenges remain.
By understanding the impact of these fluctuations, policymakers and businesses can develop
effective strategies to mitigate risks and maximize potential benefits, ensuring sustainable and
inclusive economic growth for Bangladesh.

Section II: Data and Methodology

A. Data Collection
6. Sources of data for Current Account Balance and Global Commodity
Index
This term paper explores the dynamic correlation between the economic performance of
Bangladesh and global commodity prices. To elucidate this intricate interplay, we depend on
secondary data, extracting valuable insights from two reputable sources:

Current Account Balance (CAB) Data: Derived from the Quarterly Reports of Bangladesh
Bank, these statistics provide a vivid portrayal of the ebb and flow of resources at the national
level. Serving as the foundational basis for our analysis, this data unveils how fluctuations in
global commodity prices impact Bangladesh's trade balance and overall economic health.

Global Commodity Index (GCI) Data: Acquired from the International Monetary Fund
(IMF), this dynamic index functions as an indicator of worldwide resource prices. Through a
thorough examination of its variations, we can comprehend the external influences shaping
Bangladesh's economic landscape and pinpoint potential challenges and opportunities arising
from shifts in the global commodity market.

7. Timeframe of the data

To ensure a comprehensive and relevant analysis, we've carefully selected a timeframe that
encompasses a dynamic period in Bangladesh's economic journey. The data employed in this
inquiry spans from FY2014Q1 to FY2023Q3, capturing a decade of fluctuations in global
commodity prices and their corresponding impact on Bangladesh's economic indicators. This
timeframe allows us to observe both periods of economic expansion and periods of relative
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volatility, providing a comprehensive perspective on the interplay between global markets and
national outcomes.

B. Variables
8. Definition and explanation of Current Account Balance
The Current Account Balance (CAB) of Bangladesh is a comprehensive metric reflecting the
net flow of money into and out of the country over a specific period. It's composed of three key
components:

a. Trade Balance: This measures the difference between the value of goods and services
Bangladesh exports and those it imports. A positive trade balance indicates that exports
exceed imports, leading to a net inflow of foreign currency. Conversely, a negative
trade balance signifies that imports are higher than exports, resulting in a net outflow
of currency.

b. Net Income: This captures the income Bangladesh receives from foreign investments
and assets minus the income it pays on its foreign debts and liabilities. A positive net
income contributes to a higher CAB, while a negative one reduces it.

c. Net Current Transfers: This includes remittances sent by Bangladeshi workers

abroad, government and NGO grants, and other unilateral transfers in cash or kind.
Positive net current transfers boost the CAB, while negative ones detract from it.

Breakdown:

CAB = Trade Balance + Net Income + Net Current Transfers

Understanding the individual components of the CAB is crucial for analyzing the impact of
various factors on Bangladesh's external economic position. For example, rising global
commodity prices could affect the trade balance by increasing import costs for essential
resources like fuel and raw materials. Similarly, changes in remittance flows from migrant
workers can significantly impact the net current transfers component of the CAB.

9. Definition and explanation of the Global Commodity Index

The Global Commodity Index (GCI) calculated by the International Monetary Fund (IMF) is a
comprehensive measure of the prices of essential commodities traded globally. It's not just a
single number, but rather a weighted average of several sub-indices, each representing a
specific group of commodities. The major components can be categorized into four primary
asset classes:

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 a. Energy: This category accounts for the largest share of the GCI, typically around 40-
45%. It includes essential energy sources like crude oil, natural gas, coal, and refined
petroleum products like gasoline and diesel. Price fluctuations in this category can have
a significant impact on global economic activity and inflation.

b. Non-Fuel Commodities: This category represents approximately 35-40% of the GCI

and includes a diverse range of commodities, such as: * Metals: Precious metals like
gold and silver, along with industrial metals like copper, aluminum, and nickel. *
Agriculture: Foodstuffs like wheat, rice, maize, soybeans, and coffee, as well as
agricultural raw materials like cotton and rubber. * Fertilizers: Essential nutrients like
potash and phosphates, crucial for agricultural production.

c. Precious Metals: This category contributes roughly 15-20% to the GCI and mainly
focuses on gold and silver, considered safe havens during economic uncertainty. Their
prices can be influenced by factors like global financial markets and geopolitical
tensions.

d. Other Commodities: This category makes up the remaining 5-10% of the GCI and
includes various items like timber, hides and skins, and wool.

The IMF calculates the GCI by tracking the average monthly price changes for each individual
commodity within these categories, weighted based on their relative importance in global trade.
This provides a comprehensive snapshot of the overall trend in global commodity prices.

C. Statistical Tools
10.Explanation of correlation analysis
Correlation analysis is a statistical technique that explores the relationship between two
variables, aiming to determine whether and how strongly they are connected. It's like a
detective investigating whether two factors tend to move in tandem or in opposite directions,
providing valuable insights into potential patterns and underlying relationships.

Correlation Coefficient: This numerical value, ranging from -1 to +1, measures the strength
and direction of the relationship:

• Positive Correlation (0 to +1): Indicates that variables tend to move in the same
direction. As one increases, the other tends to increase as well.
• Negative Correlation (-1 to 0): Indicates that variables move in opposite directions. As one
increases, the other tends to decrease.
• Zero Correlation (0): Indicates no discernible relationship between the variables.

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Scatter Plot: A visual representation of the relationship, plotting each pair of data points on a
graph. The pattern of the points reveals the correlation:

• A positive correlation forms a cluster of points sloping upward.

• A negative correlation forms a downward sloping cluster.
• No correlation results in a scattered pattern with no clear trend.
11.Explanation of regression analysis
Linear regression analysis is a statistical technique that models the relationship between a
dependent variable (the outcome you're trying to predict) and one or more independent
variables (the factors that might influence the outcome). It aims to draw a straight line that best
fits the data points, allowing for predictions and insights about how changes in the independent
variables might affect the dependent variable.

Here's a breakdown of key concepts:

Regression Line (Line of Best Fit): The model's core, representing the linear equation that
best describes the relationship between the variables. It's expressed as: y = b0 + b1x

• y: The dependent variable (predicted value)

• x: The independent variable (predictor)
• b0: The y-intercept (value of y when x = 0)
• b1: The slope (change in y for a unit change in x)

Coefficient of Determination (R-squared): A value between 0 and 1 that measures how

well the regression line fits the data. A higher R-squared indicates a better fit, suggesting that
the model explains more of the variation in the dependent variable.

Hypothesis Testing: Statistical tests are used to assess the significance of the model's
coefficients and determine if the observed relationships are likely due to chance or a
meaningful relationship.

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Section III: Analysis and Results
A. Descriptive Statistics
12.Mean, median, standard deviation of the variables
Descriptive statistics related to the Current Account Balance (CAB) and the Global Price Index
of All Commodities (GCI) is presented in the Table Below:

Descriptive Statistics
Sl. Particulars Current Account Global Price Index of
Balance All Commodities
I. Mean (1,032.1) 136.6
II. Standard Error 338.2 6.0
III. Median (829.0) 119.4
IV. Mode (2,072.0)
V. Standard Deviation 2,084.7 37.2
VI. Sample Variance 4,345,933.0 1,380.4
VII. Skewness (0.6) 1.1
VIII. Range 9,532.0 141.8
IX. Minimum (6,051.0) 88.6
X. Maximum 3,481.0 230.5
XI. No of Observations 39.0 39.0

These statistics offer a snapshot of the central tendencies and variability of the data, providing
insights into the relationship between the two variables.

I. Mean:
CAB: The mean Current Account Balance is 1,032.1, representing the average value. This
provides a baseline for understanding the general level of resources flowing in or out of the
national economy.
GCI: The mean Global Price Index is 136.6, indicating the average level of commodity prices
globally. This serves as a benchmark for assessing the overall price trends in the commodities
market.

II. Standard Error:

CAB: The standard error of 338.2 reflects the precision of the mean estimate for the Current
Account Balance. A higher standard error suggests more variability in the data.
GCI: With a standard error of 6.0, the Global Price Index's mean estimate is relatively precise,
indicating less variability in the commodity price data.

III. Median:
CAB: The median Current Account Balance is 829.0, providing an alternative measure of
central tendency that is less influenced by extreme values.
GCI: The median Global Price Index is 119.4, offering another perspective on the central value
of commodity prices, less sensitive to outliers.
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 IV. Mode:
CAB: The mode, 2,072.0, represents the most frequently occurring value in the Current
Account Balance dataset.
GCI: The mode is not provided for the Global Price Index, suggesting a lack of a clear, repeated
value.

V. Standard Deviation and Variance:

CAB: The high standard deviation (2,084.7) and sample variance (4,345,933.0) for the Current
Account Balance indicate considerable variability in the data, signifying potential volatility in
the national trade balance.
GCI: The lower standard deviation (37.2) and sample variance (1,380.4) for the Global Price
Index suggest relatively less variability in commodity prices.

VI. Skewness:
CAB: A skewness of -0.6 indicates a slight negative skew, implying a longer tail on the left
side of the distribution for the Current Account Balance.
GCI: A skewness of 1.1 suggests a positive skew in the Global Price Index data, indicating a
longer tail on the right side of the distribution.

VII. Range:
CAB: The range of 9,532.0 illustrates the difference between the minimum and maximum
values in the Current Account Balance dataset, providing a measure of the spread of values.
GCI: The range of 141.8 indicates the spread between the minimum and maximum values in
the Global Price Index, reflecting the range of commodity price fluctuations.

VIII. Minimum and Maximum:

CAB: The minimum and maximum values for the Current Account Balance are (6,051.0) and
3,481.0, respectively, showcasing the extent of variability in trade balance.
GCI: The minimum and maximum values for the Global Price Index are 88.6 and 230.5,
respectively, representing the range of commodity prices observed.

IX. Number of Observations:

Both CAB and GCI datasets consist of 39 observations, indicating the sample size for the
analysis.

These descriptive statistics provide a comprehensive overview of the central tendencies,

variability, and distribution characteristics of the Current Account Balance and Global Price
Index, offering valuable insights into the economic dynamics associated with trade balances
and commodity prices.

13.Time trends and patterns

Ups and Downs of Bangladesh's Current Account Balance:
Bangladesh's Current Account Balance (CAB) paints a vivid picture of a dynamic economy
constantly adjusting to both global winds and internal policy choices. From the initial positive
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swing in 2014 fueled by strong remittance inflows and rising garment exports, to the plunge in
2018 triggered by a confluence of oil price hikes, declining RMG shipments, and the
depreciation of the Taka, the CAB has been on a rollercoaster ride.

2015: The rise in exports and remittance inflows continued, pushing the CAB into positive
territory again.

2017-2019: A perfect storm of oil price hikes, weakening global demand, and rising import
costs due to Taka depreciation sent the CAB into a deep deficit.

2020-2021: The COVID-19 pandemic initially exacerbated the deficit, but a rebound in
remittances and government stimulus measures later helped improve the CAB.

2022-present: The Russia-Ukraine war and its subsequent impact on global commodity prices
pushed the CAB back into the red zone, with high import costs outweighing export earnings.

Beyond these major events, Bangladesh's domestic policies also played a role in shaping the
CAB. Government initiatives to boost exports and attract foreign investment have contributed
to positive periods, while fiscal deficits and import-heavy development projects have
sometimes widened the deficit.
Current Account Balance (LHS) Global Price Index of All Commodities (RHS)

4,000 250

2,000 200
-
150
(2,000)
100
(4,000)

(6,000) 50

(8,000) -
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Analyzing Patterns and Reasons in the Global Commodity Index (GCI)

The GCI danced to the tune of global forces, rising with booming economies, dipping with
monetary tightening and trade tensions, then plummeting and rebounding with the pandemic's
shockwaves. Today, it's a rollercoaster ride fueled by stimulus, supply chain disruptions, and
war, demanding constant attention from businesses and policymakers navigating this ever-
changing landscape.

The GCI, initially propelled by robust global growth and loose monetary policies, embarked
on a steady climb in 2014-2016. However, this ascent was met with a volatile correction in
2017-2019 as tighter monetary policies and escalating trade tensions dampened demand. The
pandemic's arrival in 2020 sent the GCI plummeting, followed by a sharp rebound fueled by
massive stimulus measures. Since then, the war in Ukraine has injected fresh uncertainty,
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causing fluctuations around a generally elevated level. This dynamic journey reflects the GCI's
sensitivity to global economic shifts, policy decisions, and geopolitical events, making it a
crucial indicator for businesses and policymakers alike.

y = -34.131x + 3631.2
R² = 0.37

4,000
Currenr Account Balance of Bangladesh

2,000

(2,000)

(4,000)

(6,000)

(8,000)
- 50 100 150 200 250
Global Comodity Index

B. Correlation Analysis
14.Correlation coefficient
Calculating the Pearson correlation coefficient involves means and deviations. First, we find
the average (mean) of both variables, then subtract it from each data point to see how far they
deviate. We multiply these deviations for corresponding pairs, capturing their intertwined
movement. Summing these products and dividing by the combined variability of each variable
yields the final correlation coefficient, a number ranging from -1 (perfect negative) to 1 (perfect
positive) that reveals the strength and direction of the linear relationship between the two
variables.

Formula: r = Σ[(xi - x̄)(yi - ȳ)] / (n-1)SxSy

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 Current Global Price
Year Quarter Account Index of All X-x̄ Y- ȳ (X-x̄)(Y- ȳ)
Balance (Y) Commodities (X)
Q1 588 168 31 1,620 50,555
Q2 854 169 32 1,886 60,755
2014
Q3 75 159 23 1,107 25,215
Q4 -111 137 0 921 283
Q1 1,081 115 -22 2,113 -46,113
Q2 197 116 -20 1,229 -25,175
2015
Q3 531 105 -32 1,563 -50,188
Q4 441 96 -40 1,473 -59,545
Q1 1,644 89 -48 2,676 -128,456
Q2 456 100 -36 1,488 -53,876
2016
Q3 833 103 -34 1,865 -62,642
Q4 773 108 -29 1,805 -51,854
Q1 539 114 -22 1,571 -35,093
Q2 -1,082 109 -28 -50 1,401
2017
Q3 -829 111 -26 203 -5,180
Q4 41 119 -17 1,073 -18,541
Q1 -1,819 127 -10 -787 7,597
Q2 -3,247 131 -6 -2,215 12,791
2018
Q3 -1,421 130 -7 -389 2,700
Q4 -3,080 123 -13 -2,048 27,113
Q1 -1,316 118 -18 -284 5,183
Q2 -2,072 119 -18 -1,040 18,234
2019
Q3 -824 114 -22 208 -4,606
Q4 -890 116 -21 142 -2,913
Q1 -740 107 -29 292 -8,545
Q2 -927 92 -44 105 -4,667
2020
Q3 -984 107 -30 48 -1,442
Q4 -2,072 117 -19 -1,040 20,171
Q1 3,481 139 2 4,513 9,101
Q2 34 154 17 1,066 18,233
2021
Q3 -4,070 167 30 -3,038 -90,821
Q4 -4,020 187 50 -2,988 -150,782
Q1 -2,545 212 75 -1,513 -113,836
Q2 -5,752 229 92 -4,720 -434,730
2022
Q3 -6,051 230 94 -5,019 -470,932
Q4 -4,291 193 56 -3,259 -182,399
Q1 -3,678 175 39 -2,646 -101,963
2023 Q2 -1,592 161 24 -560 -13,453
Q3 1,594 163 26 2,626 68,132
£(X-x̄)(Y- ȳ) -1,790,285.20
Correlation coefficient (r) -0.61

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 15.Interpretation of correlation results
Based on the calculated correlation coefficient of -0.61, we can see a Strong Negative
Relationship between the Current Account Balance (Y) and the Global Price Index of All
Commodities (X) in Bangladesh. This means that:

• When the Global Price Index increases, the Current Account Balance tends to decrease,
and vice versa. This highlights the sensitivity of Bangladesh's trade balance to fluctuations
in global commodity prices. Rising prices for imports like fuel and raw materials can put
pressure on the current account, while higher export earnings (driven by potentially higher
commodity prices) can improve the balance.

• The strength of the correlation is moderately Strong, indicating that other factors also play
a role in shaping the Current Account Balance. These could include domestic
policies, exchange rates, economic growth, and trade agreements.

C. Regression Analysis
16.Regression model specification
In a linear regression model, the relationship between the dependent variable (Y, Current
Account Balance) and the independent variable (X, Global Price Index of All Commodities) is
represented by the equation:
y^=α+βx
Yi- is the dependent variable (Current Account Balance) for observation n
Xi is the independent variable (Global Price Index of All Commodities) for observation n
α is the intercept
β is the slope coefficient
From the collected data,
Regression Statistics
Multiple R 60.8%
R Square 37.0%
Adjusted R Square 35.3%
Standard Error 1,676.9
Observations 39.0

ANOVA
df SS MS F Significance F
Regression 1 61,103,556 61,103,556 22 0
Residual 37 104,041,899 2,811,943
Total 38 165,145,455

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 Coeffi Stand t Stat P- Lower Upper Lower Upper
cients ard value 95% 95% 95.0% 95.0%
Error
Intercept 3,631 1,036 3.5 0.0 1,532 5,730 1,533 5,730

Global Price Index of (34.1) 7.3 (4.7) 0.0 (49.0) (19.3) (49.0) (19.3)
All Commodities
(RHS)

Multiple R: 60.8% indicates a moderate correlation between the Current Account Balance (Y)
and the Global Price Index of All Commodities (X).
R Square: 37.0% means that 37% of the variation in Current Account Balance of Bangladesh
(Y) can be explained by Global Price Index of All Commodities (X) in this model.
Adjusted R Square: 35.3% is a slightly more conservative measure of model fit, adjusted for
the number of predictors.
Standard Error: 1,676.9 represents the average difference between the actual Y values and
the predicted values from the model.
Intercept: 3,631.2 represents the estimated average Current Account Balance when the Global
Price Index is 0 (which might not be a realistic scenario in practice).
Global Price Index (X): -34.1 indicates a negative relationship. For every one-unit increase in
the Global Price Index, the Current Account Balance is estimated to decrease by 34.1 million
USD, on average.
P-values: Both coefficients have p-values of 0.0, indicating their statistical significance.

17.Interpretation of regression results

The model suggests that higher Global Price Index values are associated with lower Current
Account Balances in Bangladesh. However, the model only explains 37% of the variation in
the Current Account Balance, indicating that other factors also play a role.

Section IV: Interpretation of Findings

Based on the Correlation Analysis and regression analysis, we can paint a clearer picture of the
relationship between Bangladesh's Current Account Balance (CAB) and the Global Price Index
(GPI). The statistically significant negative coefficient for GPI (-34.1) confirms our initial
observation: rising global commodity prices tend to exert a downward pressure on
Bangladesh's CAB. This likely occurs due to several factors:
Import Costs: As the prices of commodities like fuel and raw materials increase, Bangladesh's
import bill rises, putting a strain on its external payments.

Export Earnings: While higher prices could potentially boost export earnings for some
Bangladeshi products, the overall impact might be dampened by:

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o Limited exportable: Many of Bangladesh's key exports are also based on imported raw
materials, meaning higher input costs might erode potential gains from higher selling
prices.
o Competitiveness: Rising GPI could put pressure on Bangladesh's competitiveness in global
markets, leading to potential declines in export volume.

Section V: Limitations of the Study

The model only explains 37% of the variation in CAB, highlighting the influence of other
uncaptured factors. Other factors also play a crucial role in the fluctuation of the Current
Account Balance of Bangladesh. Such as:
Exchange Rate: A weaker Taka might make exports more competitive but can also make
imports more expensive, impacting the CAB in complex ways.

Domestic Economic Growth: Stronger economic growth can lead to higher demand for
imports, potentially affecting the CAB.

Trade Policies and Agreements: Trade policies and agreements can influence export volumes
and import costs, impacting the CAB balance.

Section VI: Conclusion

As the Global Price Index (GPI) climbs, the country's Current Account Balance (CAB) dips,
though not linearly. While our analysis confirms a strong negative relationship, the missing
half of the story lies in domestic factors, trade intricacies, and financial flows. These hidden
players wield considerable influence, demanding a deeper understanding beyond GPI. Only
then can policymakers craft resilient strategies to protect the CAB from global price squeezes,
diversify trade, and attract investment that fuels sustainable economic growth in this ever-
changing global waltz.

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Reference:
1. Global price index of all commodities. FRED. (2023, December 19).
https://fred.stlouisfed.org/series/PALLFNFINDEXQ

2. Bangladesh Bank. (n.d.).

https://www.bb.org.bd/en/index.php/econdata/econposition

3. IMF Primary Commodity prices. IMF. (2021, August 19).

https://www.imf.org/en/Research/commodity-prices

4. World Bank
https://www.worldbank.org/en/research/commodity-markets

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