Do FDI, Trade Deficit Matter for Gross Domestic Product in Bangladesh? An Econometric Investigation

Abstract

The basic aim of this paper is to investigate the relation between trade deficit and economic growth of Bangladesh. A time series data has been used for the period of 1980 to 2013 for our analysis. GDP is treated as dependent variable while trade deficit and foreign direct investment as independent variables. Augmented Dickey Fuller test has been used to check the unit root and there is unit root in both dependent and independent variables at 5% level of significance. The results of Johansen co-integration show that foreign direct investment has significant and positive relation with GDP of Bangladesh in the long run while trade deficit has insignificant relation with economic growth in the long run. The results of Granger Causality test show that there is uni-directional causality between GDP and FDI and TD has no statistically relation with Gross Domestic Product of Bangladesh.

Key words: GDP, FDI, Trade Deficit, Bangladesh.

JEL Classification: F10; F21; F43; O10; O40; O53