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FDI as an Opportunity for Economic growth of Bangladesh: A VECM Analysis

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  • Asaduzzaman, Md

Abstract

This study investigates the empirical relationship between economic growth (GDP) and Foreign Direct Investment (FDI) as well as the Real Effective Exchange Rate (REER) and Trade Openness (TOP) of Bangladesh over the period from 1973 to 2017 by using Johansen cointegration test and VECM analysis. The empirical findings exhibit that there are a distinctive short-run and long-run relationship that exists between economic growth and foreign direct investment in Bangladesh. While the Error Correction Term (ECT) result exhibits that real effective exchange rate and trade openness are causing economic growth in the long-run. This study highly suggests that fully utilizing foreign direct investment and trade openness is one of the best chances of Bangladesh to develop its economy. Therefore, the policymaker should have more foresight to influence foreign direct investment and trade openness on the long term basis, especially to facilitate investment in the special economic zone (such as EPZ) and export more manufacturing goods and services and importing capital goods through maintaining the trade balance.

Suggested Citation

  • Asaduzzaman, Md, 2019. "FDI as an Opportunity for Economic growth of Bangladesh: A VECM Analysis," MPRA Paper 110328, University Library of Munich, Germany, revised 05 Dec 2019.
    • Handle: RePEc:pra:mprapa:110328
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    Cited by:

    1. Sakib, Mohammad Nazmus & pande, Saikat & kumar, Rimon & Arif, Dr. Kazi mostafa, 2021. "Chinese Foreign Direct Investment and Economic Growth of Bangladesh: A VECM Analysis," MPRA Paper 109654, University Library of Munich, Germany.

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    More about this item

    Keywords

    Gross Domestic Product (GDP) growth; Foreign Direct Investment (FDI); Real Effective Exchange Rate (REER); Trade Openness (TOP); Vector Error Correction Model (VECM) Model; Bangladesh Economy;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance

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