An Empirical Study on the Relationship between Foreign Investment and International Trade in Bangladesh

Abstract

Bangladesh is home to large unskilled and semi-skilled population and lacks adequate domestic employment opportunity due to scarcity of foreign direct investment (FDI) which may foster its economic growth. And this country has also been experiencing significant increase in international trade in recent years compared with the scenario of last decade. In this backdrop, the author aims at empirically searching whether these FDI and international trade bolster or hinder growth of each other or not. Taking Bangladesh data of imports, exports and FDI covering the period between 1972-2007, the test for cointegration could not reject the hypothesis of no cointegration (r<0) among the variables in question and the paper only found foreign direct investment to have granger caused import but similar causality in any other direction was not found.