Independent University Bangladesh

COURSE: BUS485 (BUSINESS RESEARCH METHOD)

Group: Team NERDS

Course Instructor:
MS. Zaima Ahmed
Faculty Member
School of Business and Entrepreneurship (SBE)

Name ID
Fahmida Tanjim Zuhin 2021263
Fahad Alfi 2022139
Sanjia Binte Shams Mriduly 2021342
Tarek Aziz 1731248

Submission Date: 9TH April 2023

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Letter of Transmittal

9th April 2023

Ms. Zaima Ahmed
Faculty Member
School of Business and Entrepreneurship (SBE)
Independent University, Bangladesh (IUB)

Subject: Submission of report on Impacts of FDI, Domestic investment and trade liberalization
on GDP growth.

Ma’am,
With due respect, it is our pleasure and honor to inform you that we have completed the analysis
that you have assigned us for the course. In writing this report, we have followed the instructions
that you have given in the class, we have also applied relevant concepts that we learned throughout
our course. We are here to submit our report and hope that you will appreciate our plan and detailed
manner. Now, we are glad to have this opportunity to present to you the report on the Impacts of
FDI, Domestic investment and trade liberalization on GDP growth.

We would be thankful once again if you would give your judicious advice on our efforts. We
believe that you will not face any difficulties in understanding this report. Thank you so much for
your constant support.

Sincerely,
Sanjia Binte Shams Mriduly
Fahmida Tanjim Zuhin
Fahad Alfi
Tarek Aziz

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 Contents

Letter of Transmittal _________________________________________________________________ 2

Introduction ________________________________________________________________________ 4
Literature review ____________________________________________________________________ 6
Methodology _______________________________________________________________________ 8
Regression analysis __________________________________________________________________ 9
• Residuals:_________________________________________________________________ 10
• Coefficients - Standard Error: _________________________________________________ 10
• Coefficients — t value _______________________________________________________ 11
• Coefficients — Pr(>|t|) and Signif. Codes: _______________________________________ 11
• Adjusted R squared. ________________________________________________________ 11
• The F-statistic _____________________________________________________________ 11
• Correlation Coefficient ______________________________________________________ 12
Empirical Analysis: __________________________________________________________________ 12
Conclusion ________________________________________________________________________ 13
References ________________________________________________________________________ 14

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Introduction

A nation’s profitable health is a pivotal sign of its development and advancement. The entire worth
of goods and services generated inside a country's boundaries over a specific time is measured by
the gross domestic product (GDP), a used index of profitable growth. The expansion of a nation's
GDP may be told by a few variables, including trade liberalization, domestic investment, and
foreign direct investment (FDI).

A South Asian country called Bangladesh has further than 160 million people. With an average
periodic GDP growth rate of 6, the country has made substantial profitable progress in recent times.
Several factors, including trade liberalization, domestic investment, and foreign direct investment
(FDI), have an impact on its expansion. In this essay, we will examine how these factors have
impacted Bangladesh’s profitable growth.

Foreign commercial investments in other countries' domestic frugality are appertained to as" FDI".
The profitable growth of Bangladesh has been vastly supported by FDI. Significant FDI inrushes
have attracted investors to the country, especially in cloth and garment diligence. Bangladesh has
one of the largest husbandries in the world, with the cloth and apparel assiduity accounting for
further than 80 of total exports. The sector's modernization and enhancement of its product
capacities were made possible by FDI, which increased exports and eventually served GDP
growth.

The term" domestic investment" contrasts foreign investment with investments made within a
nation's frugality. Domestic investment has been a crucial factor in Bangladesh’s profitable
progress. The nation has invested a significant quantum of plutocrats in perfecting its
telecommunications, electricity, and transportation systems. Domestic investment has raised GDP
by strengthening the nation's competitiveness, adding employment, and raising productivity.

To encourage trade and profitable expansion, trade obstacles like tariffs, proportions, and
restrictions are reduced or excluded through the process of trade liberalization. The growth of

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Bangladesh's frugality has also been significantly impacted by the liberalization of trade. Over
time, the nation has tried many trade liberalization enterprises, similar lowering tariffs and
attracting foreign investment to its requests. Bangladesh's exports have increased significantly as
a result, particularly in the cloth and vesture sectors. Export-concentrated programs espoused by
the government have increased foreign exchange earnings and encouraged profitable
diversification, both of which have accelerated GDP growth.

It's complicated and varies from nation to country how FDI, domestic investment, trade
liberalization, and GDP growth are related. Bangladesh’s profitable development has been
impacted by several variables, including trade liberalization, FDI, and original investment. The
GDP development of the country has been significantly impacted by these variables, particularly
in the cloth and vesture sector. To maintain its profitable growth, Bangladesh has proven its rigidity
and perseverance by chasing transnational investment, investing in the construction of the
structure, and enforcing trade liberalization legislation.

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Literature review

It is now well acknowledged that foreign direct investment (FDI) is one of the key drivers of
economic expansion in developing nations like Bangladesh. Bangladesh is a South Asian
developing nation with a population of over 169 million people. (n.d., Bangladesh Population
(2023). In the past few decades, the nation has achieved considerable strides in terms of social
indices, poverty reduction, and economic growth. Bangladesh's government has been attempting
to draw FDI to boost economic development, generate job opportunities, and upgrade the nation's
infrastructure.

A corporation from one nation invests in another to start or grow its commercial activities. This
type of investment is known as foreign direct investment (FDI). FDI may have a favorable impact
on the economy of the host nation by raising exports, boosting technical capabilities, improving
productivity, and opening job possibilities. Bangladesh has been attempting to entice FDI by
providing a variety of incentives, including tax breaks, profit repatriation, and streamlined
investment procedures. In this study, we'll use FDI, trade liberalization (export-import), and
domestic investment to illustrate GDP growth. GDP serves as our dependent variable whereas the
other factors are independent. The imports and exports of a nation are primarily affected by trade
liberalization. It is the reduction or abolition of restrictions or barriers to global trade. Economic
growth is facilitated by domestic investment. As a result, domestic investments and capital
formation promote economic growth. 2018 (Saleem)

The effect of FDI on Bangladesh's economic growth has been extensively covered in the literature.
The link between FDI and economic growth in Bangladesh has been the subject of several studies.
These studies have examined how FDI affects economic growth using a variety of techniques,
including time series analysis, panel data analysis, and regression analysis. Since the beginning of
economic reform in 1995, Bangladesh has been extremely successful in luring FDI inflows. The
FDI influx has made a substantial contribution to Bangladesh's economic growth. Bangladesh's
net FDI inflow from 2021 to 2022 is USD 3.4 billion, up from USD 2.5 billion in 2020 to 2021.
2022 (Bangladesh Bank)

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Using time series data from 1981 to 2016, Rahman and Uddin (2019) looked at the long-term
effects of FDI on economic growth in Bangladesh. The findings demonstrated that FDI has a long-
term beneficial effect on economic growth. The study also discovered that improving infrastructure
and human capital significantly contributes to the favorable effects of FDI on economic growth.
The authors suggested that to draw more FDI and optimize its beneficial effects on economic
growth, the government of Bangladesh should concentrate on enhancing the nation's infrastructure
and human capital.

Islam and Bhuiyan (2020) used yearly time series data from 1980 to 2018 to investigate how FDI
affected Bangladesh's economic growth. According to the study, FDI has a long-term, considerable
influence on economic growth. The authors also discovered that FDI had a favorable effect on
investment and exports, both of which support economic growth. According to the report, to
maintain economic growth, the government of Bangladesh needs keep providing incentives to
entice more FDI and enhance the business climate.

Uddin and Alam (2020) looked at the impact of FDI on economic development in Bangladesh
using panel data from 1990 to 2018. The study found that FDI positively impacts Bangladesh's
economic growth. The study also found that strengthening trade openness, human capital
development, and infrastructure are essential components in enhancing the positive benefits of FDI
on economic growth. The authors recommended that the government of Bangladesh focus on
improving the country's trade policy, human capital, and infrastructure to attract FDI and maximize
its positive benefits on economic growth.

Numerous studies have looked at the connection between FDI and economic growth at various
dimensions and levels, but their findings have not been very illuminating. It is generally accepted
that foreign direct investment (FDI) has a positive impact on economic growth in the host countries
by increasing productivity through the direct or indirect transfer of managerial skills, resources,
and information to the host market. Economic Growth and Foreign Direct Investment in the BRICS
Economies: A Panel Data Analysis, 2015
In conclusion, the research points to FDI as having a long-term beneficial effect on Bangladesh's

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economic growth. Factors including human capital, infrastructural development, trade openness,
and financial development have an impact on the favorable effects of FDI on economic growth.
To maximize the beneficial effects of FDI on economic growth, the Bangladeshi government
should keep providing incentives to draw in more FDI and concentrate on enhancing the nation's
investment climate, trade policy, human capital, and infrastructure. Therefore, it is crucial that the
government of Bangladesh concentrate on luring FDI into industries and areas that have a greater
chance of boosting the country's growth and development.

Methodology
Data may be collected from reliable sources such as scholarly publications, international
organizations (such the World Bank and IMF), and national statistics bureaus. R Studio 4.1.1
(RStudio Team, 2022) was used to gather fixed and pooled data for data analysis.
Four stages can be taken in the use of a linear model to examine the impacts of FDI, domestic
investment, and trade liberalization on GDP growth:
Data collection: The first step is to compile appropriate data on the relevant variables, such as
GDP, FDI, domestic investment, and trade liberalization policies (export and import statistics).

Data preprocessing: It is necessary to look for outliers, inconsistent data, and missing values in
the obtained information. To make sure they adhere to the assumptions of the linear model, the
data should, if required, be converted, or standardized.

Model specification: The linear model for this study can be written as:

GDP = β0 + β1FDI + β2DIN + β3TL + ε

Where β0 is the intercept, β1, β2, and β3 are the coefficients of FDI, domestic investment, and
trade liberalization, respectively, and ε is the error term.

Model estimation: Ordinary least squares (OLS) regression can be used to estimate the model
coefficients. The sum of squared residuals between the predicted and actual values of GDP are

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minimized by the OLS technique.

Model evaluation: The calculated model should be assessed for statistical significance and quality
of fit. Measures like R-squared, modified R-squared, F-statistic, and t-tests can be used for this.

Conclusion: The model's findings should be understood considering how trade liberalization, do
mestic investment, and FDI affect GDP growth. The borderline goods of each variable on GDP g
rowth may be calculated using the portions, and thesis testing can be performed to estimate wheth
er the goods are statistically significant.

Regression analysis

A collection of statistical ways known as retrogression analysis is used to estimate the association
s between a dependent variable and one or more independent variables. It can be used to simulate
the long-term relationship between variables and assess how strongly the relationships between th
em are related. (Taylor, 2023)

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Our model is a linear model. The variables we took:
Dependent variable: GDP (Gross Domestic Product)
Independent variable: FDI, DIN, TL
Call:
The call section shows us the formula that R used to fit the regression model.
lm(formula = GDP ~ FDI + DIN + TL, data = (team_nerds))

Residuals:
Residuals are the differences between observed and predicted values in statistical modeling. They
help assess the quality of a model's fit and identify any systematic errors. Residuals are obtained
by subtracting predicted values from observed values, and their distribution can reveal outliers.

Coefficients - Standard Error:

Standard error is a crucial measure of uncertainty in statistical analysis that helps us determine
how much a coefficient estimate may deviate from the true value. It is commonly used to compute
confidence intervals, which provide a range of plausible values for the coefficient. Moreover,
standard error aids in assessing the significance of a coefficient in a model, and a large coefficient
relative to its standard error suggests that the coefficient is statistically significant and likely not
to be zero. As such, understanding and utilizing standard error in statistical analysis is a crucial
step towards accurate and reliable results.
The relationship between GDP and the three independent variables (FDI, DIN, and TL) for the
Bangladeshi economy can be examined using this linear regression model. The findings
demonstrate that FDI significantly reduces GDP, with an estimated coefficient of -13.04914. This
suggests a correlation between rising FDI and declining GDP in Bangladesh's economy.
DIN has a positive coefficient, but at the 5% level, it is not statistically significant. This indicates
that there is insufficient data to draw the conclusion that DIN has a large impact on GDP in
Bangladesh's economy.
On the other hand, TL has a significant positive effect on GDP, with an estimated coefficient of
0.94420. This suggests that an increase in TL (trade liberalization) is associated with an increase
in GDP in Bangladesh's economy.

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Coefficients — t value
The t- statistic is a measure of the significance of portions in statistical modeling. It represents the
number of standard crimes, a measure that is down from zero and is calculated by dividing the
estimated measure by its standard error. An advanced t- statistic indicates that the measure is
statistically significant, whereas a lower t- statistic implies that it may not be contributing to the
model. The t- statistic is also used to calculate the p- value, which represents the probability of
observing a t- statistic as extreme as the one calculated if the measure was zero. A low p- value
provides substantiation for the significance of the measure.

Coefficients — Pr(>|t|) and Signif. Codes:

The p- value is a statistical measure that helps us understand the significance of the measure in the
model. It's calculated using the t- statistic from the T distribution. A p- value below0.05 is generally
considered significant, meaning we're confident that the measure isn't zero and contributes to
explaining the friction in the dependent variable. Overall, the p- value and measure canons help us
interpret the significance of the portions in the model and understand their donation to explain the
friction in the dependent variable.

The residual standard error (RSE) measures the variability of the residuals in a regression model,
indicating how well the model fits the data. A lower RSE indicates a better fit and greater accuracy
in predicting the dependent variable. By comparing RSE values between models, we can determine
which provides the best fit for the data.

Adjusted R squared.
The adjusted R-squared value of 0.9702 suggests that the model explains 97.02% of the variance
in GDP, which is a very high value. The greater adjusted R-squared shows that additional input
variables are improving the model.

The F-statistic
The F- statistic of 229.1 with a p-value of 1.603e-14 suggests that the overall model is statistically

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significant, indicating that the model is useful for predicting GDP in Bangladesh's economy. The
result is significant if the p-value is less than 0.05. It is highly significant if p 0.01.
However, it is important to note that the model is based on a limited set of variables, and other
factors may also influence GDP in Bangladesh's economy.

Correlation Coefficient
A statistical measure known as the correlation coefficient measures the strength and direction of
the linear link existing between two variables. A positive number implies a positive linear
relationship, a negative value shows a negative linear relationship, and a value of 0 indicates there
is no linear link. The correlation coefficient runs from -1 to +1.
The correlation coefficients in this instance show that:
• GDP and FDI: have a 0.946 correlation value, which shows a significant positive linear
link between the two variables. This implies that GDP tends to increase along with FDI as
it grows.
• GDP and DIN: have a correlation coefficient of 0.362, which suggests a shaky positive
linear link between the two variables. This indicates that as DIN rises, GDP tends to rise
as well, albeit more slowly than FDI does.
• GDP and TL: have a 0.984 correlation value, which shows a very high positive linear link
between the two variables. This implies that GDP tends to grow at a comparable rate as TL
does.

Empirical Analysis:

The linear model's finding that FDI has a negative impact on GDP growth may only apply to
Bangladesh's particular economic circumstances and traits. This unfavorable correlation in the
context of Bangladesh's economy could have several causes.
One factor could be that foreign investors concentrate their investments in industries with lower
labor requirements and less ability to contribute value to the Bangladesh economy. As a result,
there could not be as much knowledge transfer and job creation from FDI, which might ultimately
constrain total economic growth.
Furthermore, there may be a negative correlation between FDI and GDP development because of

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infrastructure deficiencies, weak governance, and unfavorable business environments in
Bangladesh.
The variable DIN (Domestic Investment), according to the presented regression result, does not
seem to be statistically significant in explaining the variation in Bangladesh's GDP growth. This
is evident from the t-value (0.879) and the corresponding p-value (0.3907), which show that there
is insufficient data to rule out the null hypothesis that the coefficient of DIN is zero (i.e., that DIN
and GDP growth have no meaningful relationship).
It is significant to note that domestic investment may still play a significant role in Bangladesh's
economic growth even though it failed to achieve statistical significance in this regression model.
The relationship between domestic investment and GDP growth may also be influenced by other
aspects, including the quality of institutions, governmental policies, and financial accessibility. It's
also possible that the model's precise functional form and specification don't adequately reflect the
complex relationship between these variables.

Conclusion
The results of our analysis support the view that foreign investment and trade can have positive
spillover goods on domestic frugality, leading to increased productivity, invention, and technology
transfer. These benefits can be particularly important for developing countries that may warrant
the necessary coffers and moxie to develop their husbandry singly. Likewise, the findings suggest
that programs that foster a favorable investment and trade climate can help attract foreign investors
and boost domestic investment, which in turn can lead to advanced profitable growth rates.
It's also important to note that while our analysis highlights the positive impacts of FDI, domestic
investment, and trade liberalization on GDP growth, these programs can also have implicit
downsides, including implicit negative goods on the terrain, income distribution, and social weal.
Thus, policymakers need to precisely balance the benefits and costs of these programs and apply
applicable safeguards to alleviate implicit negative impacts.
Overall, our analysis provides substantiation of the important part that FDI, domestic investment,
and trade liberalization can play in promoting profitable growth. Still, policymakers must consider
the broader social and environmental counteraccusations of these programs and apply them in a
responsible and sustainable manner.

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 References
Bangladesh Bank. (2021). Export promotion and marketing. . (n.d.). Retrieved from
https://www.bb.org.bd/econdata/exports.php
Bangladesh Bank. (2022). Foreign direct investment and external debt. (n.d.). Retrieved from
https://www.bb.org.bd//pub/halfyearly/fdisurvey/fdisurveyjanjun2022.pdf
Bangladesh Bureau of Statistics. (2021). Gross domestic product (GDP) of Bangladesh. . (n.d.). Retrieved
from http://www.bbs.gov.bd/Home.aspx
Bangladesh Bureau of Statistics. (2021). Retrieved from Gross domestic product (GDP) of Bangladesh. :
http://www.bbs.gov.bd/Home.aspx
Bangladesh Investment Development Authority. (2021). Investment policy of Bangladesh. (n.d.).
Retrieved from http://www.bida.gov.bd/site/page/5b5e6d3c-71db-4568-87fc-
b7e4a3a4f7d8/Investment-Policy
Bangladesh Population (2023). (n.d.). Worldometer. (n.d.). Retrieved from
https://www.worldometers.info/world-population/bangladesh-population/
Dutta, C. B. (2017). Dynamics of economic growth, investment and trade openness. Evidence from
Bangladesh, p. 6(1).
Foreign Direct Investment and Economic Growth in BRICS Economies: A Panel Data Analysis. (2015, April
4). Journal of Economics, Business and Management. (n.d.). Retrieved from
http://www.joebm.com/papers/221-W00050.pdf
Gujarati, D. N. (2003). Basic econometrics. McGraw-Hill. (n.d.).
Hussain, M. A. (n.d.). mpact of Foreign Direct Investment on Bangladesh’s Balance of Payments: Some
Policy Implications.
Hussain, M. E. (2016, April 15). Foreign Direct Investment, Trade, and Economic Growth: An Empirical
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Analysis of Bangladesh. Foreign Direct Investment, Trade, and Economic Growth: An Empirical
Ana.
Mostafa, M. M. (2020, October 20). Impacts of Inflation and Exchange Rate on Foreign Direct Investment
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Taylor, S. (2023). Regression Analysis. CFI.

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