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Do Macroeconomic Factors Defy the Expected Relationship with FDI Inflows in a Developing Country? An Econometric Analysis Based on Bangladesh

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  • Sk. Riad Arefin
  • Swarnil Roy
  • Avijit Mallik

Abstract

Through econometric analysis, this study investigates the effects of various economic factors on foreign direct investment (FDI) inflows in Bangladesh from 1980 to 2019. ARDL (Autoregressive Distributed Lag) has been used to estimate the economic determinants of FDI inflows in Bangladesh after removing the trends from the independent variables. Empirical results revealed that GDP, Fixed Telephone Subscribers, Inflation Rate, and Education Spending are the eminent economic determinants of FDI. Subsequently, a Granger causality test and Vector Auto Regression (VAR) confirmed the absence of any long-term impact of these variables on FDI. From the analysis, it is evident that the ADF (Augmented Dickey-Fuller) test is necessary to remove the trend from these variables and corner those variables for the ARDL method to find the significant ones that have substantial impacts on FDI in Bangladesh. GDP, Fixed Telephone Subscribers, Inflation Rate, and Education Spending are found to be statistically significant while all of them having a positive impact on the FDI. Even though this study matches with many other previous studies conducted by researchers, some exciting findings contradict the expected result and open new doors for further research.

Suggested Citation

  • Sk. Riad Arefin & Swarnil Roy & Avijit Mallik, 2021. "Do Macroeconomic Factors Defy the Expected Relationship with FDI Inflows in a Developing Country? An Econometric Analysis Based on Bangladesh," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(10), pages 1-28, September.
    • Handle: RePEc:ibn:ijefaa:v:13:y:2021:i:10:p:28
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    References listed on IDEAS

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    1. WIJEWEERA, Albert & MOUNTER, Stuart, 2008. "A Var Analysis On The Determinants Of Fdi Inflows: The Case Of Sri Lanka," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(1), pages 189-198.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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