Export, Exchange Rate, Inflation, FDI, and Economic Growth in Bangladesh: A Time Series Analysis
Abstract:
This study examines the impact of internal and external factors on Bangladesh’s long-term economic growth, with a focus on inflation, exchange rates, foreign direct investment (FDI), and exports. Understanding these relationships is crucial for policymakers, particularly in light of the country’s ongoing economic transformations and external pressures. The research utilizes annual data from 1986 to 2022 and employs the Autoregressive Distributed Lag (ARDL) model to examine both short-term and long-term relationships. This model considers stationarity and cointegration among variables, ensuring reliable results. Diagnostic tests confirm the model’s dependability. The study reveals that currency depreciation has a positive impact on economic growth by enhancing export competitiveness. Although inflation has a negative but statistically insignificant effect, and FDI shows a positive but statistically insignificant influence, these results suggest a need for more effective investment policies. Exports contribute to growth in the short term, though their long-term importance is limited, emphasizing the need for export diversification. The error correction model suggests a robust adjustment process that promotes long-term economic stability. However, the study’s scope is limited by excluding key structural factors, such as labor market dynamics, technological progress, and institutional quality, which could further explain variations in growth. Additionally, using only annual data restricts the ability to capture short-term fluctuations and external shocks, such as political instability or global crises. Overall, this research adds to existing knowledge by thoroughly examining the internal and external factors affecting Bangladesh’s economic growth through a robust econometric approach. The findings offer valuable insights for policymakers in developing economies seeking to strike a balance between currency stability, controlling inflation, promoting investment-driven growth, and encouraging export diversification.
Keywords: Exchange Rate, Inflation, FDI, Export, Economic Growth, ARDL
Citation:
Mamun, A., Ara, A., & Kabir, M. H. M. (2024). Export, Exchange Rate, Inflation, FDI, and Economic Growth in Bangladesh: A Time Series Analysis. CPER Working Paper Series No. 05. Available at: https://cperbd.org/working-paper/6
This study examines the impact of internal and external factors on Bangladesh’s long-term economic growth, with a focus on inflation, exchange rates, foreign direct investment (FDI), and exports. Understanding these relationships is crucial for policymakers, particularly in light of the country’s ongoing economic transformations and external pressures. The research utilizes annual data from 1986 to 2022 and employs the Autoregressive Distributed Lag (ARDL) model to examine both short-term and long-term relationships. This model considers stationarity and cointegration among variables, ensuring reliable results. Diagnostic tests confirm the model’s dependability. The study reveals that currency depreciation has a positive impact on economic growth by enhancing export competitiveness. Although inflation has a negative but statistically insignificant effect, and FDI shows a positive but statistically insignificant influence, these results suggest a need for more effective investment policies. Exports contribute to growth in the short term, though their long-term importance is limited, emphasizing the need for export diversification. The error correction model suggests a robust adjustment process that promotes long-term economic stability. However, the study’s scope is limited by excluding key structural factors, such as labor market dynamics, technological progress, and institutional quality, which could further explain variations in growth. Additionally, using only annual data restricts the ability to capture short-term fluctuations and external shocks, such as political instability or global crises. Overall, this research adds to existing knowledge by thoroughly examining the internal and external factors affecting Bangladesh’s economic growth through a robust econometric approach. The findings offer valuable insights for policymakers in developing economies seeking to strike a balance between currency stability, controlling inflation, promoting investment-driven growth, and encouraging export diversification.
Keywords: Exchange Rate, Inflation, FDI, Export, Economic Growth, ARDL
Mamun, A., Ara, A., & Kabir, M. H. M. (2024). Export, Exchange Rate, Inflation, FDI, and Economic Growth in Bangladesh: A Time Series Analysis. CPER Working Paper Series No. 05. Available at: https://cperbd.org/working-paper/6