Time - Series Co - Integration Evidence of the Foreign Direct Investment and Economic Growth in Bangladesh

This essay examines the relationship between Bangladesh's GDP and foreign capital inflow. Time series analysis from 1986 to 2020 is used to do this. The two variables can be deduced to have first-order integration (1) based on the study of stationarity, which suggests that a non-stationary series becomes stationary after just one cycle of differencing. Additionally, the study employs Johansen's co-integration procedure to ascertain a long-term link between the variables. At the significance level of 0.5, it can be deduced from the maximum Eigenvalue and trace test results that there are two integrating equations and four co-integrating equations. Long-term estimates of FDI show a statistically substantial and favourable impact on GDP, according to co-integration analysis. The logarithm of foreign direct investment (LNFDI) and gross domestic product (LNGDP) have a clear long-term correlation. An increase in LNFDI of one percent corresponds to an increase in LNGDP of 0.132 percent. The short-term correction of errors will show an intriguing increase in GDP that can be linked to the inflow of foreign direct investment (FDI). A one percent increase in the logarithm of nominal gross domestic product (LNGDP) corresponds to an annual growth of 0.003411 percent of LNGDP, assuming all other factors stay the same. Additionally, at the five percent significance level, it has been shown that the GDP has a statistically significant Granger causal effect. This suggests that historical GDP values can be used to predict present and future transactions. However, Granger causality analysis shows no causal relationship between FDI and GDP. Thus, the correlation between foreign capital inflows and Bangladesh's economic growth can be greatly enhanced by the current research.