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The impact of foreign direct investment on the economy of Bangladesh: A time-series analysis

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  • Mohammad Abdullah Al FAISAL

    (University of Chittagong, Bangladesh)

  • Mohammed Saiful ISLAM

    (University of Chittagong, Bangladesh)

Abstract

This paper aims to discover the relationship between FDI and GDP in the context of Bangladesh. Using annual data of FDI, GDP, and export for the period of thirty-three years from 1986 to 2018, the paper finds that above three variables are non-stationary at level but stationary at first difference. No cointegration among three variables is found through the application of the cointegration test. The Granger-causality test reveals that there are no causalities among the variables except a causality running from FDI to GDP. The variance decomposition exhibits that the forecast error variance of GDP is mainly explained by itself and FDI. A negative relationship between FDI and GDP in the short-run is observed by the impulse response function. This finding indicates that the absorptive capacity of Bangladesh is not sufficient enough to avail the FDI for promoting economic growth. The paper renders some policy recommendations to ameliorate the absorptive capacity of Bangladesh to exploit the FDI.

Suggested Citation

  • Mohammad Abdullah Al FAISAL & Mohammed Saiful ISLAM, 2022. "The impact of foreign direct investment on the economy of Bangladesh: A time-series analysis," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(630), S), pages 123-142, Spring.
    • Handle: RePEc:agr:journl:v:1(630):y:2022:i:1(630):p:123-142
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    2. Gibogwe, Vincent & Nigo, Ayine R.S. & Kufuor, Karen, 2022. "Institutional Quality and Economic Growth in Tanzania," MPRA Paper 115486, University Library of Munich, Germany, revised 28 Nov 2022.
    3. Gibogwe, Vincent & Nigo, Ayine R.S. & Kufuor, Karen, 2022. "Foreign direct investment and economic growth in Tanzania," MPRA Paper 115028, University Library of Munich, Germany, revised 20 Oct 2022.
    4. Gibogwe, Vincent & Nigo, Ayine & Kufuor, Karen, 2022. "Institutional Quality And Economic Growth In Tanzania," MPRA Paper 115400, University Library of Munich, Germany.
    5. Didarul Islam & Mohammad Abdullah Al Faisal, 2024. "Determinants of Uruguay's Real Effective Exchange Rate: A Mundell-Fleming Model Approach," Papers 2403.16452, arXiv.org.
    6. Gibogwe, Vincent & Nigo, Ayine & Kufuor, Karen, 2022. "FDI and economic growth in SADC region," MPRA Paper 115029, University Library of Munich, Germany, revised 29 Sep 2022.

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