Fdi in Bangladesh

Topics: Macroeconomics, Investment, Foreign direct investment Pages: 15 (3898 words) Published: May 23, 2013
1.Introduction :

Foreign direct investment (FDI) is a potent weapon of developing the Bangladesh economy and can play an important role in achieving the country’s socio-economic objectives including poverty reduction goals. In a capital-poor country like Bangladesh, FDI can emerge as a significant vehicle to build up physical capital, create employment opportunities, develop productive capacity, enhance skills of local labor through transfer of technology and managerial know-how, and help integrate the domestic economy with the global economy. According to UNCTAD in 2003 Bangladesh achieved only 0.05 percent of total FDI while the proportion was 0.9 percent in India, 0.52 percent in Vietnam, 10.2 percent in Indonesia and 70 percent in China (The Daily Star-November 7, 2004 Issue). Even FDI inflows in Bangladesh declined from 2000 to 2001, which were US$ 578.6 to US$ 354.5 million respectively. Foreign Direct Investment (FDI) inflows during January-December 2004 were US$460 million whereas the target was US$600 million (Robin, A.I. 2006, United Nation’s Report 2005-2006). Estimation of the following years will also be discussed throughout the report. The inflow of FDI is being restricted in the country by infrastructural, bureaucratic and environmental complicacy (Mian, M. E. Alam, Q. 2006). However, Bangladesh is not full of hindrances for FDI but some opportunities are also hidden in this host country and it could be the most next preferable destination for FDI. So, it is required to explore the issues of FDI regarding its inflow, restrictions and potentiality.

* Origin of the report:
This report is required for the course “International Trade & Finance” (F-208) which is offered by the BBA program under Department of Finance, University of Dhaka. Under the supervision of our course instructor lecturer Md. Mukhlesur Rahman, this report is prepared on a specific topic named “Foreign Direct Investment (FDI)” and is based on the problems and possibilities of Foreign Direct Investment in Bangladesh. Throughout the report we tend to describe the past as well as current condition of foreign investment and its determinants regarding our country, Bangladesh.

This paper is fully based on secondary information. Content Analysis Method, which is commonly known as the review of the previous literature, has been followed in the preparation of this article. Apart from that secondary information have been collected from the statistics Department of Bangladesh Bank, Investment Handbook of Bangladesh Board of Investment, Bangladesh Economic Review 2010 and Bangladesh Bank’s Annual Report 2010. Some information has also been collected from the daily newspapers and Internet sources. Used data has been presented through tabular and graphical analysis.

2.Basic concept of FDI:

* Definition FDI:

FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.

According to IMF, FDI is an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investor’s purpose being to have an effective voice in the management of the enterprise.

In short, FDI is directly investing assets in a foreign country.

* Factors which determines where FDI goes :

In this section, we tend to focus on determinants of FDI inflows.

FDI can be attracted by low tax levels on foreign firms, or by the aggressive use of subsidies....
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