Investigating the crowding effect of FDI on domestic investments: Evidence from Bangladesh
Ai-Jun Guo,
Sayed Farrukh Ahmed,
A.K.M. Mohsin,
Arifur Rahman,
Shamsul Nahar Abdullah,
Choo Wou Onn,
Mohammad Saiyedul Islam
Affiliations
Ai-Jun Guo
School of Economics, Lanzhou University, Gansu, Lanzhou, China
Sayed Farrukh Ahmed
Faculty of Business & Entrepreneurship, Daffodil International University, Daffodil Smart City, Ashulia, Dhaka, Bangladesh
A.K.M. Mohsin
School of Economics, Lanzhou University, Gansu, Lanzhou, China; Faculty of Business & Entrepreneurship, Daffodil International University, Daffodil Smart City, Ashulia, Dhaka, Bangladesh; Corresponding author. School of Economics, Lanzhou University, Jiatan Road, Chengguan Section, Lanzhou City, Gansu Province, China.
Arifur Rahman
School of Economics, Lanzhou University, Gansu, Lanzhou, China
Shamsul Nahar Abdullah
Faculty of Business & Communications, INTI International University, Nilai, Malaysia
Choo Wou Onn
Faculty of Data Science and Information Technology, INTI International University, Nilai, Malaysia
Mohammad Saiyedul Islam
School of International Trade and Economics, Jiangxi University of Finance and Economics Jiangxi, China
This study empirically investigates the crowding effect of Foreign Direct Investment (FDI) on domestic investments in Bangladesh, utilizing annual time series data from 1972 to 2022. Initially, unit root tests are conducted with and without considering structural breaks in the dataset. This study employs the Johansen test of cointegration to investigate the enduring association between the variables and utilizes the Vector Error Correction Model (VECM) to accommodate this relationship over the long term. Following the estimation of the VECM, formulas about the magnitude of the crowding effect (CE) are applied to examine the impact of FDI on domestic investment in Bangladesh. Results indicate that FDI positively influences domestic investments in both the short and long run.
