A Note on Causal Relationship Between FDI and Savings in Bangladesh

Theoretical and Applied Economics, Vol. 17, No. 11, pp. 53-62, 2010

10 Pages Posted: 7 Jan 2011

See all articles by Dr. Muhammad Irfan Chani

Dr. Muhammad Irfan Chani

COMSATS University Islamabad

Mohammad Salahuddin

Southeast University (Bangladesh)

Muhammad Qaiser Shahbaz

COMSATS Institute of Information Technology (CIIT)

Date Written: December 4, 2010

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 Classification: F21, E2

Suggested Citation

Chani, Muhammad Irfan and Salahuddin, Mohammad and Shahbaz, Muhammad Qaiser, A Note on Causal Relationship Between FDI and Savings in Bangladesh (December 4, 2010). Theoretical and Applied Economics, Vol. 17, No. 11, pp. 53-62, 2010. Available at SSRN: https://ssrn.com/abstract=1735667 or http://dx.doi.org/10.2139/ssrn.1735667

Muhammad Irfan Chani (Contact Author)

COMSATS University Islamabad ( email )

Mailsi Road
Off Multan Road
Vehari, Punjab
Pakistan

HOME PAGE: http://ww3.comsats.edu.pk/faculty/FacultyDetails.aspx?Uid=19095

Mohammad Salahuddin

Southeast University (Bangladesh) ( email )

Banani
Dhaka, 1230
Bangladesh

Muhammad Qaiser Shahbaz

COMSATS Institute of Information Technology (CIIT) ( email )

Park Road
Chak Shahzad
Islamabad, North-West Frontier Province 44000
Pakistan

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