Foreign direct investment and the manufacturing sector in Bangladesh

As in many other developing countries, Bangladesh has initiated reform strategies and provided incentives to attract foreign direct investment (FDI). The central aim of FDI strategies is to promote the export-oriented manufacturing sector and improve the productive capacity, efficiency, technological advancement and export performance of the country. However, due to conflicting theoretical and empirical findings, the contribution of FDI to economic development is still an issue of debate. This study examines the contribution of FDI to the performances of the manufacturing sector in Bangladesh over the period 1984-2015 using time series analysis. The Johansen-co-integration technique and Vector Error Correction model (VECM) are applied to estimate long run relationship between FDI and Manufacturing Value Added (MVA) for Bangladesh using time series data for the period 1980-2015. Based on the statistical and empirical results the study found that FDI inflows create some positive contributions to the growth, export, and productive capacity base of the sector. However, FDI inflow seems fail to establish sufficient backward linkages in the sector. Bangladesh should place more emphasis on backward linkages issue when dealing with foreign investors and promoting FDI.