The Influence of Foreign Direct Investment on Bangladesh's Economic Growth

Abstract

The main goal of this study is to assess how foreign direct investment (FDI) has affected Bangladesh's economic growth. The main goal of this study is to determine how FDI affects Bangladesh's imports, exports, and economic growth. According to the report, FDI inflows have emerged as a crucial tool for Bangladesh's GDP growth, bringing the capital, expertise, and technological advancements required for economic expansion. This study employs co-integration analysis and the Vector Error Correction Model (VECM) Test to investigate the relationship between Bangladesh's GDP growth and foreign direct investment (FDI). An empirical analysis was carried out using annual secondary data for Bangladesh from 1974 to 2023 to explore the connection between FDI inflows and economic expansion in Bangladesh. Using the Augmented Dickey-Fuller (ADF) tests, I could determine that all variables were stationary in the first differenced form. Before calculating a long-term connection, the Unit Root Test is utilized to examine the time series characteristics of the data, revealing that all variables are integrated of order one. Following this, a co-integration test indicates a single co-integrating equation among the variables. The long-term correlations are subsequently estimated using the Vector Error Correction Model (VECM). The findings suggest that Bangladesh's economic growth, exports, imports, and foreign direct investment are significantly linked over the long run. The impulse response function also reinforces the conclusion that FDI, exports, and imports stimulate Bangladesh's economic growth.