Foreign Direct Investment, Financial Development, and Economic Growth Nexus in Bangladesh

Siddikee, Md. Noman and Rahman, Mohammad Mafizur (2020) Foreign Direct Investment, Financial Development, and Economic Growth Nexus in Bangladesh. The American Economist. pp. 1-16. ISSN 0569-4345


Abstract

This article aims to explore the short- and long-run impact of foreign direct investment (FDI), financial development (FD), capital formation, and the labor forces on the economic growth of Bangladesh. We applied the Granger causality test and Vector Error Correction Model (VECM) for this study. The World Bank data for the period of 1990–2018 are taken into account for the analysis. Our findings suggest, in the long run, capital formation has a positive impact, and in the short run, it has a negative impact on gross domestic product (GDP) implying a lack of higher efficiency is persisting in capital management. Similarly, labor forces have an insignificant impact in the short run and a negative impact in the long run on GDP, which confirms the presence of a huge number of unskilled laborers in the economy with inefficient allocation. The impact of FD is found tiny positive in the short run but large negative in the long run on GDP indicating vulnerability of banking sector. These also confirm fraudulence and inefficient use of the domestic credit supplied to the private sector. The impact of FDI is approximately null both in the short and long run, indicating Bangladesh fails to achieve the long-term benefits of FDI. Finally, this study suggests using FDI more in the capital intensive project of the public–private partnership venture than infrastructural development only and also improving the credit management policy of the banking sector.


Statistics for USQ ePrint 38879
Statistics for this ePrint Item
Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Faculty/School / Institute/Centre: Historic - Faculty of Business, Education, Law and Arts - School of Commerce (1 Jul 2013 - 17 Jan 2021)
Faculty/School / Institute/Centre: Historic - Faculty of Business, Education, Law and Arts - School of Commerce (1 Jul 2013 - 17 Jan 2021)
Date Deposited: 22 Jul 2020 05:36
Last Modified: 14 Jul 2021 01:06
Uncontrolled Keywords: foreign direct investment; financial development; economic growth; Bangladesh
Fields of Research (2008): 14 Economics > 1402 Applied Economics > 140202 Economic Development and Growth
14 Economics > 1403 Econometrics > 140305 Time-Series Analysis
Fields of Research (2020): 44 HUMAN SOCIETY > 4404 Development studies > 440499 Development studies not elsewhere classified
38 ECONOMICS > 3802 Econometrics > 380205 Time-series analysis
Socio-Economic Objectives (2008): B Economic Development > 91 Economic Framework > 9101 Macroeconomics > 910103 Economic Growth
Identification Number or DOI: https://doi.org/10.1177/0569434520938673
URI: http://eprints.usq.edu.au/id/eprint/38879

Actions (login required)

View Item Archive Repository Staff Only