Determinants of Foreign Direct Investment in Bangladesh and Empirical Analysis

Abstract

This  study  examines  the  various  economic  factors  effects  on  foreign  direct  investment  (FDI)  inflows  into Bangladesh during  the  study period  ranging  from 1972 to  2010.  Log linear regression  model has been used  and  the  method  of  least  squares (OLS)  has  been  applied  to estimate  the  various  determinants  effects  on  FDI inflows. In the models, dependent variable is Natural Log of real foreign direct investment. Independent variables are market size proxied by natural log of real GDP, Trade Balance, Labor productivity expressed by natural log of productivity indices of industrial labor in selected industries (Jute, Cotton, Paper, Steel, Cement, and Fertilizer). According to the econometric results, market size has positive sign and is statistically significant. Trade balance is found positive sign and statistically significant. Labor productivity has positive sign but not significant.

Keywords: Foreign Direct Investment, Determinants of FDI, Unit Root Test, Co-integration test, Jarque-Bera test, multicollinearity test, Heteroskedasticity