Foreign Direct Investment and Economic Growth in Bangladesh Economy

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.