Foreign direct investment and agricultural output nexus in Bangladesh: An autoregressive distributed lag approach

Abstract

Foreign Direct Investment’s (FDI) contribution to the agricultural share of GDP is a questionable topic in Bangladesh’s current economy. Therefore, this study aims to inspect the effect of FDI inflow in agriculture on the agriculture sector’s contribution to Bangladesh’s economic development. The study used advanced econometric tools to the time series data obtained from the Bangladesh Bank and the Bangladesh Economic Review from 1996 to 2021. For the empirical analysis, the authors employ the Autoregressive Distributed Lag (ARDL) co-integration approach to measure short-run dynamics and long-run relationship between FDI inflow in agriculture (AFDI) and agricultural share to GDP (AGDP) in Bangladesh. The findings from the estimation confirm that AFDI has a statistically significant effect on AGDP in the short run; in the long run, it is insignificant. Bangladesh will have to improve its policy for creating the environment to attract FDI in the agricultural sector to draw more promising investments to boost agricultural productivity. In this regard, the country can reform its taxation and agricultural investment policies to create an ‘investment-friendly climate’ for attracting long-term foreign capital in agriculture.

Keywords

• Agriculture share to GDP
• Bound co-integration
• FDI
• GDP
• Long- and short-run relationship