Macroeconomic Determinants of Foreign Direct Investment in Bangladesh

Abstract

This paper investigates the impact of selected macroeconomic factors on Foreign direct investment (FDI) through statistical analysis of time-series data over a period of thirty-three years, from 1990 to 2022 which has a significant impact on boosting Bangladesh’s economy. The study has examined the short-run and long-run relationship between FDI and selected macroeconomic factors i.e., Gross Domestic Product growth as market size, exchange rate, inflation rate, corporate tax rate, real interest rate, trade openness and domestic credit to private sector as macroeconomic stability and institutional quality. The study utilized the ARDL test to examine shortterm relationships and the Bound Co-integration test to investigate long-term relationships. Furthermore, the analysis included measurements of short-run vital correction to achieve convergence toward a long-term equilibrium relationship. It has been determined that a short-run disequilibrium should be rectified by 84.18% each year by an error correction model. The pandemic years have had a significant impact on the GDP and inflation data.

Keywords:
FDI, Macroeconomic stability, ARDL, Bound test, ECM