FOREIGN DIRECT INVESTMENT: IMPACT ON SECTORAL GROWTH IN BANGLADESH

Abstract

This paper examines the impact of Foreign Direct Investment (FDI) on the sectoral (agriculture,
industry and service) growth pattern of Bangladesh economy over the last 11 years, 1995-2005.
Analysing data from secondary sources the study estimates the relationship between the inflow of
FDI and annual output growth achieved in different sectors by computing correlation co-efficient
and corresponding p-values. The analyses reveal that FDI inflow in the industrial sector does not
appear to correlate much with industrial growth, however, it relates better with service sector growth.
FDI inflow in service sector is fairly well correlated with the growth in that sector as well as in the
industrial sector. FDI in agricultural sector does not have any close relationship with the sectoral
growth pattern. One interesting point is that over the period 1995 to 2005, the country enjoyed
a positive net FDI inflow except 2003 and 2004, when foreign investors have taken out more
money than they have pumped into the country through repatriation of profit/dividend, capital
and repayment of loans with foreign banks and other sources. The paper also provides some policy
suggestions and recommendations for weighing up the advantages and disadvantages of FDI to
ensure enhanced growth and sustainability.