The Impact of Foreign Direct Investment on Poverty Reduction: Evidence from Bangladesh

Abstract

This study aims to identify the contribution of foreign direct investment on poverty reduction in Bangladesh with a data period of 32 years starting from FY 1991 to FY 2022 with annual observations in real term. Besides foreign direct investment, gross domestic product, government expenditure on education, employment, and trade openness are used as control variables. Per capita consumption is used as a proxy for poverty reduction. The study goes for Johansen Co-integration test and then Vector Error Correction Model rather than Ordinary Least Squares Regression to avoid any spurious result as indicated by Augmented Dickey-Fuller test. This study finds that FDI has significantly negative relationship while Employment has almost indifferent effect on poverty reduction in the long run. However, other control variables, i.e., GDP, Govt. Expenditure on education and Trade openness have long run positive relationship in this regard. The short run causality of FDI toward poverty reduction is also insignificant in Bangladesh.