Revisiting the Nexus Between Financial Development, Foreign Direct Investment and Economic Growth of Bangladesh: Evidence from Symmetric and Asymmetric Investigation

Md. Qamruzzaman, Salma Karim, Wei Jianguo

Abstract


We revisit the nexus between foreign direct investment, financial development, and economic growth of Bangladesh over the 1975-2017 period. By apply Autoregressive distributed lagged (ARDL) advance by Pesaran et al. (2001a) and nonlinear Autoregressive Distributed Lagged (NARDL) initiated by Shin et al. (2014). We also investigate directional causality by employing asymmetry casualty test proposed by Hatemi-j (2012). ARDL bound testing approach confirms the long-run association between economic growth and selected macroeconomic variables. We also observed the nonlinear effects, in the long run, running from financial development, FDI, trade openness, inflation to economic growth. Meanwhile, the results of asymmetry causality confirmed unidirectional causality between positive shocks in financial development and positive shock in economic growth, positive shocks in economic growth and positive shocks in FDI. Furthermore, symmetry causality test confirms bidirectional causality between financial development and economic growth and unidirectional causality running from FDI and inflation to economic growth.

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