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

Md Asaduzzaman

MPRA Paper from University Library of Munich, Germany

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.

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 (search for similar items in EconPapers)
JEL-codes: C1 C15 C3 C32 C4 C49 C5 C51 E6 F1 F3 (search for similar items in EconPapers)
Date: 2019-12-05, Revised 2019-12-05
New Economics Papers: this item is included in nep-cwa, nep-fdg, nep-int and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in ERN: Other Development Economics: Macroeconomic Issues in Developing Economies (Topic) https://ssrn.com/abstract=3498742 (2019): pp. 1-28

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