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Foreign Direct Investment and Economic Growth in Bangladesh Economy

Received: 28 November 2014     Accepted: 9 December 2014     Published: 17 December 2014
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Abstract

The paper attempted to investigate the dependence of gross domestic product (GDP) on foreign direct investment (FDI), external debt (ED) and remittance (REM) based on annual data from 1986 to 2013. The selected variables were gross domestic product (GDP), foreign direct investment (FDI), external debt (ED) and remittances (REM). Results have been analyzed by using advanced econometric tools like- unit root test (both ADF and PP), OLS methods and Granger causality test. The results confirmed that, both FDI and REM have positive relationship with GDP, where as ED has negative influence on GDP of Bangladesh. In order to minimize the gap between domestic saving and investment and to bring the technology and managerial know-how, FDI could play important role on the way of economic development of Bangladesh. Similarly remittance (REM) is also playing an important role in the economic development by increasing the foreign currency reserve and strengthening the foreign exchange rate. Therefore, government should take pragmatic policy, develop infrastructure, stabilized the political environment, law and order situation. On the other hand it should decrease the dependence on external debt (ED). If Bangladesh pay due attention to the role of FDI in the economic development it can facilitate human capital formation, domestic investment and technology transfer in the country.

Published in International Journal of Economics, Finance and Management Sciences (Volume 2, Issue 6)
DOI 10.11648/j.ijefm.20140206.16
Page(s) 339-346
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Foreign Direct Investment, Growth, Unit Root Test, Granger Causality, Bangladesh

References
[1] Agrawal, G. and A. Khan, 2011, “Impact on FDI on GDP: A Comparative Study of China and India” International Journal of Business and Management, 6(10), P: 71-79.
[2] Alfaro, L. (2003), “Foreign Direct Investment and Growth: Does the Sector Matter?” Mimeo. Boston, MA: Harvard Business School.
[3] Bos, H.C., Sanders, M. and Secchi C. (1974) “Private Foreign Investment in Developing Countries: A Quantitative Study on the Macroeconomic Effects”, Dardrecht: Reidel.
[4] Caves, R. E. (1974) “Multinational firms, Competition and Productivity in Host Country Markets”, Economica , 41, 176-93.
[5] Chowdhury, A. and G. Mavrotas (2005), “FDI and growth: A causal relation”, WIDER Research Paper. Finland: UNU World Institute for Development Economics Research.
[6] Crespo, Nuno and Fontoura, Maria Paula (2007). “Determinant Factors of FDI Spillovers- What do we really know?” World Development, Vol. 35, No. 3, pp 410-425.
[7] Duasa, J (2007), “Malaysian Foreign Direct Investment and Growth: Does Stability Matters”. Journal of Economic Corporation, 28 (2), 83.
[8] Granger, C. (1981), “Some Properties of Time Series Data and Their use in Econometric Model Specification.” Journal of Econometrics, 16. P: 121-130.
[9] Gujrati, N. Damodar. (2003) “Basic Econometrics” (4th Editions) McGraw-Hill/Irwin.
[10] Hayami, Yujiro (2001). “Development Economics: From Poverty Alleviation to the Wealth of Nations”, 2nd Edition. New York: Oxford University Press.
[11] Kamaly, A. 2002. “Evaluation of FDI Flows into the MENA Region.” Working Paper Series. Cairo, Egypt: Economic Research Forum.
[12] Kukeli, Agim, Chuen-Mei Fan and Liang-Shing Fan (2006), “FDI and growth in transition economies: Does the mode of transition make a difference?” RISEC, 53(3): 302-322.
[13] Mohammed S. and Sidiropoulos (2010), “Do Worker Remittances Affect Growth: Evidence from Labor Exporting MENA Countries?” International Research Journal of Finance and Economics 46(2010):181-194.
[14] Phillips, P.C.B and P. Perron (1988) “Testing for a Unit Root in Time Series Regression” Biometrika, 75, P: 335-346.
[15] Pradhan, R. P. (2009), “The FDI-led-growth hypothesis in ASEAN-5 countries: Evidence from cointegrated panel analysis”, International Journal Business and Management, 4(12): 153-164.
[16] Prebisch, R. (1968) “Development Problems of the Peripheral Countries and the Terms of Trade, in: James D.” Theberge, ed. Economics of Trade and Development. New York: John Wiley and Sons Inc.
[17] Reza, S. Rashid, M.A. and Alam, M (1987). “Private Investment in Bangladesh”, The University Press Ltd.:Dhaka.
[18] Saltz, S. (1992) “The Negative Correlation between Foreign Direct Investment and Economic Growth in the Third World: Theory and Evidence,” Rivista Internazionale di Scienze Economiche e Commerciali, 39, 617-633.
[19] Samimi, A. J., Zeinab Rezanejad and Faezeh Ariani (2010), “Growth and FDI in OIC Countries”, Australian Journal of Basic and Applied Sciences, 4(10): 4883-4885.
[20] Singer, H.W. (1950) “The Distribution of Gains between Investing and Borrowing Countries”, American Economic Review, 40, 473-485.
Cite This Article
  • APA Style

    Khairul Kabir Sumon. (2014). Foreign Direct Investment and Economic Growth in Bangladesh Economy. International Journal of Economics, Finance and Management Sciences, 2(6), 339-346. https://doi.org/10.11648/j.ijefm.20140206.16

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    ACS Style

    Khairul Kabir Sumon. Foreign Direct Investment and Economic Growth in Bangladesh Economy. Int. J. Econ. Finance Manag. Sci. 2014, 2(6), 339-346. doi: 10.11648/j.ijefm.20140206.16

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    AMA Style

    Khairul Kabir Sumon. Foreign Direct Investment and Economic Growth in Bangladesh Economy. Int J Econ Finance Manag Sci. 2014;2(6):339-346. doi: 10.11648/j.ijefm.20140206.16

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  • @article{10.11648/j.ijefm.20140206.16,
      author = {Khairul Kabir Sumon},
      title = {Foreign Direct Investment and Economic Growth in Bangladesh Economy},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {2},
      number = {6},
      pages = {339-346},
      doi = {10.11648/j.ijefm.20140206.16},
      url = {https://doi.org/10.11648/j.ijefm.20140206.16},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20140206.16},
      abstract = {The paper attempted to investigate the dependence of gross domestic product (GDP) on foreign direct investment (FDI), external debt (ED) and remittance (REM) based on annual data from 1986 to 2013. The selected variables were gross domestic product (GDP), foreign direct investment (FDI), external debt (ED) and remittances (REM). Results have been analyzed by using advanced econometric tools like- unit root test (both ADF and PP), OLS methods and Granger causality test. The results confirmed that, both FDI and REM have positive relationship with GDP, where as ED has negative influence on GDP of Bangladesh. In order to minimize the gap between domestic saving and investment and to bring the technology and managerial know-how, FDI could play important role on the way of economic development of Bangladesh. Similarly remittance (REM) is also playing an important role in the economic development by increasing the foreign currency reserve and strengthening the foreign exchange rate. Therefore, government should take pragmatic policy, develop infrastructure, stabilized the political environment, law and order situation. On the other hand it should decrease the dependence on external debt (ED). If Bangladesh pay due attention to the role of FDI in the economic development it can facilitate human capital formation, domestic investment and technology transfer in the country.},
     year = {2014}
    }
    

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  • TY  - JOUR
    T1  - Foreign Direct Investment and Economic Growth in Bangladesh Economy
    AU  - Khairul Kabir Sumon
    Y1  - 2014/12/17
    PY  - 2014
    N1  - https://doi.org/10.11648/j.ijefm.20140206.16
    DO  - 10.11648/j.ijefm.20140206.16
    T2  - International Journal of Economics, Finance and Management Sciences
    JF  - International Journal of Economics, Finance and Management Sciences
    JO  - International Journal of Economics, Finance and Management Sciences
    SP  - 339
    EP  - 346
    PB  - Science Publishing Group
    SN  - 2326-9561
    UR  - https://doi.org/10.11648/j.ijefm.20140206.16
    AB  - The paper attempted to investigate the dependence of gross domestic product (GDP) on foreign direct investment (FDI), external debt (ED) and remittance (REM) based on annual data from 1986 to 2013. The selected variables were gross domestic product (GDP), foreign direct investment (FDI), external debt (ED) and remittances (REM). Results have been analyzed by using advanced econometric tools like- unit root test (both ADF and PP), OLS methods and Granger causality test. The results confirmed that, both FDI and REM have positive relationship with GDP, where as ED has negative influence on GDP of Bangladesh. In order to minimize the gap between domestic saving and investment and to bring the technology and managerial know-how, FDI could play important role on the way of economic development of Bangladesh. Similarly remittance (REM) is also playing an important role in the economic development by increasing the foreign currency reserve and strengthening the foreign exchange rate. Therefore, government should take pragmatic policy, develop infrastructure, stabilized the political environment, law and order situation. On the other hand it should decrease the dependence on external debt (ED). If Bangladesh pay due attention to the role of FDI in the economic development it can facilitate human capital formation, domestic investment and technology transfer in the country.
    VL  - 2
    IS  - 6
    ER  - 

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Author Information
  • Department of Finance and Banking, Begum Rokeya University, Rangpur, Bangladesh

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