Foreign Capital Inflows and Economic Growth of Bangladesh

Abstract

This study is conducted for showing the relationship between foreign capital inflows and the economic growth of Bangladesh. The main aim of this study is to find out the contribution of foreign capital inflows to the economic growth of Bangladesh. By applying the pairwise Granger causality test (1969) based on time series data for the last 20 years, this study found that there is no causality of GDP with different sources of foreign capital revealing that foreign capital inflows do not have any significant impact on the economic growth of Bangladesh. There is a unidirectional relationship between Foreign Direct Investment (FDI) and External debt and another unidirectional relationship is between External debt and Remittance (RM). This unidirectional relationship shows that FDI granger cause ED and ED granger causes RM. This relationship is shown that the source of foreign capital is moving together for Bangladesh. Bangladesh is one of the lowest foreign capital receivers compared to other Asian countries. So, to reap the benefits of foreign capital inflows like other developing and emerging economies Bangladesh should take proper policy and give incentives to investors to make it an attractive destination for foreign investors.