A Note on Causal Relationship between FDI and Savings in Bangladesh

Salahuddin, Mohammad; Shahbaz, Muhammad; Chani, Muhammad Irfan
November 2010
Theoretical & Applied Economics;Nov2010, Vol. 17 Issue 11, p53
Academic Journal
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.


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