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FDI as an Opportunity for Economic growth of Bangladesh: A VECM Analysis.

Asaduzzaman, Md (2019): FDI as an Opportunity for Economic growth of Bangladesh: A VECM Analysis. Published in: ERN: Other Development Economics: Macroeconomic Issues in Developing Economies (Topic) No. https://ssrn.com/abstract=3498742 (26 December 2019): pp. 1-28.

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Abstract

This study investigates the empirical relationship between economic growth (GDP) and Foreign Direct Investment (FDI) as well as the Real Effective Exchange Rate (REER) and Trade Openness (TOP) of Bangladesh over the period from 1973 to 2017 by using Johansen cointegration test and VECM analysis. The empirical findings exhibit that there are a distinctive short-run and long-run relationship that exists between economic growth and foreign direct investment in Bangladesh. While the Error Correction Term (ECT) result exhibits that real effective exchange rate and trade openness are causing economic growth in the long-run. This study highly suggests that fully utilizing foreign direct investment and trade openness is one of the best chances of Bangladesh to develop its economy. Therefore, the policymaker should have more foresight to influence foreign direct investment and trade openness on the long term basis, especially to facilitate investment in the special economic zone (such as EPZ) and export more manufacturing goods and services and importing capital goods through maintaining the trade balance.

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