Keyword

FDI Inflows, Economic Growth, FDI and GDP growth relationship, Vector Error Correction Metrics.

Abstract

The research finds out that there is a causal relationship between Foreign Direct Investment Inflows (FDI) and Gross Domestic Product (GDP) Growth. The study also reveals that the issue of Foreign Direct Investment (FDI) Inflows has become a vital weapon of Gross Domestic Product (GDP) growth for Bangladesh, bringing in technological development, capital investment and knowledge also needed for economic growth. According to this view, this paper purposes to study the relationship between FDI and economic growth in Bangladesh by the co-integration and Vector Error Correction Metrics (VECM) Test. The empirical analysis has conducted by using annual secondary data for the year of 1990-2015 of Bangladesh, to investigate the relationship between FDI Inflows and Economic Growth in Bangladesh. Paper finds out the positive relationship running from FDI Inflows to GDP in the long-run and short-run. The study suggests that Bangladesh government can create foreign investment-friendly policies, transfer of knowledge and trade promotion as well. This paper also advocates that the country's capacity to improve on economic growth will subject to promote more FDI Inflows.

 


Full Text : PDF

References
  1. A. Acaravci and I. Ozturk, 2012. Foreign direct investment, export and economic growth: Empirical evidence from new EU countries, Roman. J. Econ. Forecast  2012, 2, 52–67.
  2. A. Ahmad, N. Ahmad and S. Ali, 2013. Exchange Rate and Economic Growth in Pakistan (1975-2011), Journal of Basic and Applied Scientific Research, 3(8)740-746, 2013.
  3. A. Babatunde, 2011.Trade Openness, Infrastructure, FDI and Growth in Sub-Saharan African Countries, Journal of Management Policy and Practice, vol. 12(7) 2011.
  4. A. Boateng, X. Hua, S. Nisar, and J. Wu, 2015. Examining the determinants of inward FDI: Evidence from Norway, Economic Modelling, Vo.47 (2015) 118–127.
  5. A. K. Miankhel, S. M. Thangavelu, and K. Kalirajan, 2010. Trade, FDI, Regional Integration in East Asia, SSRN Electronic Journal, DOI: 10.2139/ssrn.1700112.
  6. E. F. Carlos and V. Z. Eddie, 2015. Foreign direct investment and gross domestic product growth, International Conference on Applied Economics, Procedia Economics and Finance, 24 (2015) 198 – 207.
  7. D. Acemoglu, 1998. Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality, The Quarterly Journal of Economics, Vol. 113, No. 4 (Nov. 1998), pp. 1055-1089.
  8. D. Volmecke, B. Jindra, and P. Marek, 2016. FDI, human capital and income convergence—Evidence for European regions, Economic Systems, Vol. 40 (2016) 288–307.
  9. E. Amoah, E. N. Yarko, and K. Asare, 2015. FDI, Inflation, Exchange Rate and Growth in Ghana: Evidence from Causality and Cointegrated Analysis, European Scientific Journal November 2015 edition, Vol.11, No.31, ISSN: 1857 – 7881 (Print) e - ISSN 1857- 7431.
  10. E. Borensztein, J. De Gregorio and J.W. Lee, 1998. How Does Foreign Direct Investment Affect Economic Growth? Journal of International Economics, Vol: 45: 115–135.
  11. H. K. Nath, 2009. Trade, foreign direct investment, and growth: Evidence from transition economies, Comparative Economic Studies, 51, 20–50. doi:10.1057/ces.2008.20.
  12. I. Cevis and B. Camurdan, 2007. The Economic Determinants of Foreign Direct Investment in Developing Countries and Transition Economies, The Pakistan Development Review 46: 3 (Autumn 2007), pp. 285–299. 
  13. J. Benhabib, M. M. Spiegel, 1994. The roles of human capital in economic development evidence from aggregate cross-country data, Journal of Monetary Economics, Vol. 34,143– 173, DOI: 10.1016/0304-3932(94)90047-7.
  14. J. E. Chen and S. A. M. Zulkifli, 2012. Malaysian outward FDI and economic growth, Procedia-Social and Behavioral Sciences, 65 (2012) 717 – 722.
  15. J. H. Dunning, 1993. Multinational Enterprises and the Global Economy, Addisson-Wesley Publishing Company, ISSBN: 0201175304.
  16. J. M. Andraz and P. M. M. Rodrigues, 2010. What causes economic growth in Portugal: exports or inward FDI? Journal of Economic Studies, Vol. 37 Iss. 3 pp. 267-287. 
  17. J. P. Damijan and M. Rojec, 2007. Foreign Direct Investment and Catching Up of New EU Member States: Is There a Flying Geese Pattern? Applied Economics Quarterly, 53(2):91-118. •
  18. M. A. Fadhil and M. K. Almsafir, 2015. The Role of FDI Inflows in Economic Growth in Malaysia (Time Series: 1975-2010), Procedia Economics and Finance, 23 (2015) 1558 – 1566.
  19. M. Blomstrom, R. E. Lipsey, and M. Zejan, 1996. Is Foreign Investment the Key to Economic Growth? The Quarterly Journal of Economics (1996), 111 (1): 269-276.
  20. M. G. Ahamad, F. Tanin and Z. U. Ahmed, 2010. Does FDI intensify economic growth? Empirics from Bangladesh, Munich Personel RePEc Archive, Paper no: 21022.
  21. M. Irandoust, 2016. Structural changes, FDI, and economic growth: evidence from the Baltic states,  Economic Structures (2016) 5:14, DOI 10.1186/s40008-016-0045-8.
  22. N. G. Mankiw, 2012. Principles of Economics (6th Edition), Cengage Learning Pub. ISBN-13: 9780538453059.
  23. M. S. Alam and T. Chang, 2012. An Analysis of Global FDI and Korean Investment in Bangladesh and Economic Cooperation Imperatives for the Host Country, Journal of Industrial Economics and Business, Volume: 25, Issue: 4, Pages: 2751-2775.
  24. M. Seyoum, R. Wu andJ. Lin, 2015. Foreign Direct Investment and Economic Growth: The Case of Developing African Economies, Soc Indicators Research (2015) 122:45–64.
  25. OECD, 2008. OECD Benchmark Definition of Foreign Direct Investment, Fourth Edition 2008, ISBN: 978-92-64-04573-6
  26. P. A. Garcia-Fuentes, P. L. Kennedy and G. F. C. Ferreira, 2016. U.S. foreign direct investment in Latin America and the Caribbean: a case of remittances and market size, Applied Economics, 2016, Vol. 48, No. 51, 5008–5021, DOI: 10.1080/00036846.2016.1170931.
  27. P. Asheghian, 2016. GDP growth determinants and foreign direct investment causality: the case of Iran, The Journal of International Trade & Economic Development, Vol. 25, No. 6, 897-913, DOI: 10.1080/09638199.2016.1145249.
  28. P. Gupta and A. Singh, 2016. Causal nexus between foreign direct investment and economic growth: A study of BRICS nations using VECM and Granger causality test, Journal of Advances in Management Research, Vol. 13 Iss 2 pp. 179–202.
  29. R. F. Engle and C. W. J. Granger, 1987. Co-integration and error correction representation, estimation and testing, Econometrica, Vol. 55 No. 5, pp. 286-301.
  30. R. R. Nelson and E. S. Phelps, 1966. Investment in humans, technological diffusion and economic growth, The American Economic Review, Vol. 56, No. 1/2. (Mar. 1966), pp. 69-75.
  31. S. Iamsiraroj, 2016. The foreign direct investment-economic growth nexus, International Review of Economics and Finance, Vol. 42 (2016) 116–133, DOI: 10.1016/j.iref.2015.10.044.
  32. S. Jun 2015. The Nexus between FDI and Growth in the SAARC Member Countries, Journal of East Asian Economic Integration, Vol. 19, No. 1 (March 2015) 39-70.
  33. Y. SU and Z. Liu, 2016. The impact of foreign direct investment and human capital on economic growth: Evidence from Chinese Cities, China Economic Review, 37 (2016) 97–109.
  34. World Development Indicators, 2017, The World Bank, 
  35. http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=BD.