Effects of Foreign Direct Investment on GDP: Empirical Evidence from Developing Country

Abstract

This empirical research is to analyze the causal relationship between foreign direct investment (FDI) and gross domestic product (GDP) mainly focused on Bangladesh. The main objective of the paper is to investigate existence and nature of the effect of FDI on GDP in Bangladesh from the perspective of developing country. The researcher applies cointegration test that confirmed the existence of long-run equilibrium relationship and Granger causality test assured the presence of uni-directional causality which runs from foreign direct investment to GDP. Findings of the study concluded that comparing to neighbour Asian countries FDI inflow is very low and Bangladesh should develop infrastructure, skill labor, shortage of power and electricity generation, investment friendly macroeconomic framework & also political stability to attract foreign investors significantly.