THE IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN BANGLADESH

Abstract

This study aims to examine the impact of Foreign Direct Investment (FDI) on economic growth in Bangladesh over the period of 1973 to 2020. The study utilizes time series data and employs several econometric techniques, including Dicky Fuller test, unit root test, and cointegration test, to examine the relationship between FDI and economic growth. The results of the Dicky Fuller and unit root tests indicate that all variables are non-stationary in level form but become stationary in first difference form. The cointegration test shows that there is a long-run equilibrium relationship between FDI and economic growth in Bangladesh. The study employs the Vector Error Correction Model (VECM) to examine the short-run dynamics of the relationship. The results indicate that FDI has a positive and statistically significant impact on economic growth in both the short and long run. The study also finds evidence of a bidirectional causality between FDI and economic growth, indicating that FDI inflows have a positive impact on economic growth, and in turn, economic growth attracts more FDI inflows. The study recommends that policymakers in Bangladesh should create a favorable investment climate to attract more FDI inflows, which could contribute to sustained economic growth and development.