Forecasting and unveiling the impeded factors of total export of Bangladesh using nonlinear autoregressive distributed lag and machine learning algorithms

Abstract

Rising global oil prices are a major challenge for an emerging oil-importing nation such as Bangladesh. The majority of prior research on the economic effects of an oil price shock has concentrated on developed countries, with emerging economies receiving comparatively less attention. Bangladesh is vulnerable to price shocks due to its rising oil consumption over the past decade. This study aims to investigate how changes in oil prices would affect Bangladesh's total export earnings and to forecast the overall export volume. This study utilized a nonlinear autoregressive distributed lag (NARDL) approach to account for the asymmetric behavior of oil prices from 1991 to 2021. To assess the accuracy of predictions, the study employed the Prophet forecasting model and the Long Short-Term Memory (LSTM) method. Additionally, the symmetry test revealed a nonlinear relationship between export volume and oil price but a linear relationship between inflation and export volume. According to the NARDL assessment, both positive and negative oil shocks increase export earnings over the long run. The short run summary clarifies that both positive and negative changes in oil prices exert a significant negative effect on exports. Also, Inflation influences export earnings negatively in the short run but positively over the long term. Moreover, using machine learning methods, it was found that the LSTM method outperforms the prophet model in prediction performance with a low root mean square error (RMSE) of 1.88. Also, the analysis revealed policymakers that the export sector requires diversification to reduce its exposure to oil price shocks.

Keywords

• C22
• E31
• F10
• Q43
• Q47