THE CONTRIBUTION OF FOREIGN DIRECT INVESTMENT AND ITS IMPACT ON ECONOMIC GROWTH AND INFLATION IN BANGLADESH
Keywords:FDI, Real Effective Exchange Rate Inflation Rate, Gross Domestic Product Annual Growth, Real Interest Rate, VECM, Co-integration.
This research examines the inflation and time-series data and explanatory variables covering 1975 to 2020. It had been discovered. that real effective exchange rate influences foreign direct investment in Bangladesh from diverse secondary sources to suit the study's objectives. Economic growth is an issue of concern for Bangladesh's development. Foreign direct investment (FDI) is a potential weapon for economic development, especially for Bangladesh. It can help us to build up physical capital, decrease the unemployment rate, increase production capacity and increase new products which people may enjoy different goods and create a good economic relationship between the domestic economies with the global economy. The study findings reveal that FDI has a negative sign, indicating an inverse relationship between FDI and economic growth. The negative sign of FDI supports that Bangladesh should attract FDI increasing human capital, creating a good political environment, and enhancing adequate infrastructure facilities, which will improve the economic growth of Bangladesh. It has been found that the inflation rate has a significant negative effect on FDI in the long run, but is negligible in the short run. If we do foreign direct investment in Bangladesh the inflation rate goes down and the exchange rate and economic growth go to increase. The results also show that the exchange rate has a significant positive relationship with FDI both in the long-run and shortrun. This research described that foreign direct investment has a long-term impact on the real effective exchange rate and inflation. There is also confirmed that control variables such as annual growth and real interest rate are a long-run relationship. The approximated coefficients show a little significant impact on the explanatory variable on FDI. The inflation rate has an enormous negative influence on foreign direct investment in the long run, but it has little effect in the short run. The findings revealed real effective exchange rate has a significant positive association with FDI because if the foreign direct investment is increasing in Bangladesh that’s mean the exchange rate of foreign currency goes down so definitely exchange rate of Bangladesh goes up.