Foreign Direct Investment and Economic Growth In Bangladesh and India:A Comparative Study

Foreign Direct Investment (FDI) is often seen as important catalysts for economic growth in the developing countries. The study compares the trends of FDI inflows in Bangladesh and India. This study examines the relationship between FDI and economic growth in Bangladesh and India respectively. In this study we estimate the effects of FDI on economic growth by Ordinary Least Squares (OLS) method using time series data for the period 1974-2006. ADF test and Johansen co-integration test, and Granger causality test are performed to examine the effect and direction of relationship. The regression results found that the coefficient of FDI is positive but it is statistically insignificant for Bangladesh. The result indicates that FDI is positively correlated to the economic growth of Bangladesh but it has not yet been established as a significant determining factor for the economic growth of Bangladesh. On the other hand, the estimated coefficient for FDI is negative and statistically insignificant for India. The result indicates that FDI is negatively correlated to the economic growth of India and it has not yet been established as a significant determining factor for the economic growth of India.