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FOREIGN DIRECT INVESTMENT
IN BANGLADESH, PROSPECTS AND CHALLENGES,
AND ITS IMPACT ON ECONOMY

by

Afsana Rahman

A project submitted in partial fulfillment o f the requirements for t he degree of Professional Master in Banking and Finance

Examination Committee:

Nationality:
Previous Degree:

Scholarship Donor:

Dr.Winai Wongsurawat (Chairperson)
Dr. S undar Venkatesh
Dr. Y uo sre Badir

Bangladeshi
MBA in Marketing
University of Dhaka
Bangladesh
Bangladesh Bank (Central Bank of Bangladesh)

Asian Institute of Technology
School of Management
Thailand
May 2012

i

ACKNOWLEDGEMENT
I a m very much indebted to Dr.Winai Wo ngsurawat, t he supervisor of my project work for his continuous support and guidance. His valuable suggestions gave me the strength to complete my project.

I owe my deepest gratitude to the authority of Bangladesh Bank, the central bank of Bangladesh for granting me this scholarship.
Special thanks are due to the officials of Bangladesh Bank and Board of Investment (BOI) of Bangladesh for helping me in collecting the required data for the project work. Finally, I acknowledge the profound blessings and k indness of the Almighty. I would like to dedicate this project to my friends and family members who have given me the strength to b uild my career and life.

ii

ABSTRACT
FDI p lays a dominant role in the economy o f Bangladesh t hrough accelerating Gross Domestic Product (GDP), e xport and domestic investment followed by overall economic growth. So it is vital for a developing country like Bangladesh to carry out effective measures in protecting t he prospective foreign investors so that they can get a congenial atmosphere to invest their capital. They should feel that t heir role in t he b usiness arena of Bangladesh is respectfully valued. In this connection, friendly regulations, simplifying regulatory practices, investment incentives a nd removal of inefficient bureaucratic procedures s hould be ensured. Keywords: Foreign Direct Investment status in Bangladesh, Economic growth, Prospects & problems of FDI, I mpact of FDI.

i ii

Table of Contents

Chapter

1

2

3

4

5

Title
Title Page
Acknowledgement
Abstract
Table of contents
List of figures
List of tables

Page
i
ii
iii
iv
vi
vii

Introduction
1.1 Background of the study
1.2 Objectives of the study
1.3 Methodology
1.3.1 Time Reference
1.3.2 Data Analysis

1
2
2
2
2

Literature Review
2.1 Key Definitions
2.1.1 Foreign Direct Investment (FDI)
2.1.2 Economic Growth
2.1.3 FDI and Growth
2.2 Key Findings by other researchers

3
3
3
3
4

An overview of FDI in Bangladesh
3.1 Present FDI Status
3.2 FDI Inflows by Components
3.2 FDI Inflows by Areas
3.4 FDI Inflows by sectors
3.5 FDI Inflows by countries

6
7
9
9
11

Prospects & Problems of FDI in Bangladesh
4.1. Prospects of FDI
4.2 Problems of FDI

14
15

I mpact of FDI inflow on the econo my of Bangladesh
5.1 Impact of FDI inflow
5.2 Dependent Variables
5.2.1 GDP
5.2.2 Export
5.2.3 Domestic Investment
5.3 Independent Variable
5.3.1 FDI Inflow
5.4 Model Specification

17
17
17
17
17
17
17
18

iv

Chapter

6

Title
5.5 Hypot hesis of the study
5.6 Results
5.6.1 Impact of FDI on GDP
5.6.2 Impact of FDI on Export
5.6.3 Impact of FDI on Private investment
5.7 Analysis
5.8 GDP, GDP Growth, FDII/GDP and FDII/GDP Growth,
Export, Export/GDP and Domestic investment over time

Page
19
19
19
20
20
21
22

Conclusion & Recommendations
6.1 Conclusion and Recommendations

24

References

26

Appendices

29

v

Lists of Figures
Figure
3.1
3.2.1
3.2.2
3.2.3
3.3.1

3.4.1
3.4.2
3.4.3
3.4.4

Title
FDI Inflows in USD in Bangladesh d uring 1996- 2011
FDI Inflows (in million USD) by components in
Bangladesh during 1996- 2010
FDI Inflows, in million USD by components in 1996
FDI Inflows, in million USD by components in 2010
FDI...
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