Why Free Trade Agreement is Crucial for Bangladesh-Japan Trade Relationship: An Empirical Analysis

Abstract

Recently, Bangladesh and Japan facilitated the development of stronger economic ties with the introduction of the pro-western industrial and economic policies. Gradually, with identification of the differences in areas of specialization, scope for prosperous trade between Bangladesh and Japan has arisen. Bilateral trade between Bangladesh and Japan has been consistently high over the years, with a total trade value of around one billion USD in the early 2000s, and reaching 57 billion USD in 2022. For several years, Bangladesh has been the country which has received the most Yen Loans or Overseas Development Assistance (ODA) from Japan totaling at $3393 million in the FY 2020. In September 2020, Bangladesh and Japan initiated the Economic Partnership Agreement (EPA) to improve and negotiate economic nexus between the two nations. In the context of recent development between these two nations, present work will aim to find out trade potential of both the countries in the context of Free Trade Agreement (FTA). To achieve the objective, a Revealed Comparative Advantage (RCA) analysis has been conducted from 2002-2022 using secondary data from UN COMTRADE. The results suggested that both countries have an advantage in different commodities. Thus, this paper analyses the areas of opportunities for commodities where bilateral trade can be beneficial, for which a FTA should be signed which would create a win-win situation for both the economies.