Foreign Capital and Economic Growth: Evidence from Bangladesh

TL;DR

This paper investigates how foreign capital sources like FDI, remittances, and aid influence Bangladesh's long-term economic growth, introducing a new index (FCDI) and analyzing their effects over time.

Contribution

It introduces the Foreign Capital Depthless Index (FCDI) and examines its long-term impact on Bangladesh's economic growth using VECM analysis.

Findings

FDI, remittances, and aid positively affect long-term growth

FCDI has a positive long-term relationship with economic growth

Short-term causality between variables and GDP is not significant

Abstract

This study aims to examine the relationship between Foreign Direct Investment (FDI), personal remittances received, and official development assistance (ODA) in the economic growth of Bangladesh. The study utilizes time series data on Bangladesh from 1976 to 2021. Additionally, this research contributes to the existing literature by introducing the Foreign Capital Depthless Index (FCDI) and exploring its impact on Bangladesh's economic growth. The results of the Vector Error Correction Model (VECM) suggest that the economic growth of Bangladesh depends on FDI, remittances, and aid in the long run. However, these variables do not exhibit a causal relationship with GDP in the short run. The relationship between FCDI and economic growth is positive in the long run. Nevertheless, the presence of these three variables has a more significant impact on the economic growth of Bangladesh