Ready-made garments exports earning and its contribution to economic growth in Bangladesh

Abstract

This study attempts to explore the cointegration among economic growth rate, ready-made garments (RMG) exports earning and foreign direct investment (FDI) inflow in Bangladesh. It uses time-series annual data for the period 1986–2018. The study applies ARDL bound testing to determine cointegration among the variables, and pairwise Granger causality test to explore direction of causality. The result of ARDL bound testing reveals the presence of long run as well as short run relationships among the variables. The RMG exports earning significantly improves the economic growth rate both in the short run and long run. The more the RMG exports earning, the more will be the economic growth rate. The pairwise Granger causality test confirms a positive causality running from RMG exports earning to economic growth rate. FDI inflow has a significant negative effect on economic growth rate in short run, while no significant effect in the long run. RMG exports earning causes FDI inflow as the former attracts the latter. Therefore, the policy makers should target for improvement in human capital of RMG workers through various training programs that will boost the RMG output and exports earning, enhance their living standard and economic growth rate. The government may encourage FDI inflow particularly in backward linkage for woven fabrics that will minimize outward capital flight and boost the economic growth performance.