Foreign Direct Invest Ment

Foreign Direct Invest Ment

Theoretical and Applied Economics Volume XVII (2010), No. 11(552), pp. 53-62

A Note on Causal Relationship between FDI and Savings in Bangladesh
Mohammad SALAHUDDIN Southeast University, Banani, Dhaka, Bangladesh Muhammad SHAHBAZ COMSATS Institute of Information Technology, Lahore, Pakistan Muhammad IRFAN CHANI National College of Business Administration & Economics, Lahore, Pakistan

Abstract. This paper aims to investigate the causal relationship between foreign direct investment and gross domestic savings in Bangladesh over a period of 1985-2007. In doing so, Johansen cointegration technique and error correction methods are employed to examine the long run and short run relationship between foreign direct investment and gross domestic savings. To determine the direction of causality, we used innovation accounting approach. Results suggest that there exist bi-directional causal relationship between foreign direct investment and gross domestic savings but the movement is stronger from domestic savings to foreign direct investment. The result also implies complimentary relationship between them and as such, policy makers in Bangladesh need to focus on the determinants of both FDI and domestic savings in order to accelerate its growth. Keywords: FDI; Gross domestic savings; causal relationship. JEL Codes: F21, E2. REL Codes: 8E, 10F.


Mohammad Salahuddin, Muhammad Shahbaz, Muhammad Irfan Chani

Introduction The phenomenon of foreign direct investment as a manifestation of internationalization and integration of economic life constitutes the basic dictum of our age. FDI is conventionally defined as a form of international inter-firm co-operation that involves significant equity stake and effective management decision power or ownership control of foreign enterprises. FDI is also considered to encompass other broader, heterogeneous non-equity forms of cooperation that involve the...

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