Informal Border Trade between Bangladesh and India: A critical study

Abstract

India is an important trade partner of Bangladesh. Trade relation in consideration to value and volume is increasing gradually at a sustained rate. Official trade gap between Bangladesh and India is also widening. At present it is almost ten times higher in favour of India. But the most important issue is the informal trade practices between the two countries. According to different studies including this study the informal trade figure is almost equal to official trade. Interestingly the gap of informal trade is also in favour of India. Study shows that two items dominate the informal trade sector that is cattle and Textile. Demand supply gap along with official restrictions on cattle trade from the Indian side initiated informal cattle trade between the two countries. On the other hand demand for Indian textile the price quality relationship along with non tariff barriers initiated huge scope of informal trade. Though the trade is both way but like official trade gap informal trade gap is infavour of India. Large numbers of people in the border areas are involved in informal trade practices. The study focused on the impact of informal trade on macroeconomic aspects of Bangladesh. The study found that impact of informal trade is significantly high for the economy of Bangladesh. Study also highlighted that informal trade of cattle influencing different areas of economy such as employment, balance of trade, food inflation, export oriented leather and dairy industry as well. The informal trade has got both positive and negative impact on the economy. But in the long run the negative aspects outweigh the positive impacts f informal trade. The study suggests that reducing the magnitude of informal trade and diverting the informal trade through official channels will benefit both the countries.