Can Bangladesh absorb LDC graduation-induced tariff hikes? Evidence using product-specific price elasticities of demand and markups for apparel exports to Europe

As a current LDC member, Bangladesh enjoys generalised scheme of preference (GSP) benefits for its exports in the European markets. However, this special treatment is likely to cease or be replaced by less favourable schemes upon Bangladesh's LDC graduation in 2026. This preference erosion is expected to lead to price increases for Bangladesh's readymade garment (RMG) products in the EU and the UK markets. Consequently, the export of RMG products from Bangladesh in these markets could become less competitive, given that the EU and the UK import similar products from other RMG-exporting countries.

This study aims to estimate the own- and cross-price elasticities of import demand in the EU and the UK markets for RMG products from Bangladesh and 11 other source countries. These elasticity estimates will reveal the susceptibility of Bangladesh's (RMG) exports in these markets. Furthermore, the study will facilitate the computation of markups for these RMG products. These markups serve as an important indicator of Bangladesh's RMG exporters' capacity to absorb potential price shocks that may arise following the country's graduation from LDC status. Specifically, higher markups suggest a greater ability of Bangladesh's RMG exporters to mitigate and manage the challenges posed by the changing trade dynamics. 

Ultimately, the research aims to empower policymakers with evidence-based recommendations to ensure the sustainability and growth of Bangladesh's RMG industry in the face of evolving trade conditions.