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International Journal of Business and Economics Research

2020; 9(2): 78-82


http://www.sciencepublishinggroup.com/j/ijber
doi: 10.11648/j.ijber.20200902.14
ISSN: 2328-7543 (Print); ISSN: 2328-756X (Online)

Empirical Analysis of Factors Influencing Economic


Growth Rate in Bangladesh
Fatema Jannat1, Mohammad Rubel Miah1, Mohammad Omar Faruk2, *, Shafiqul Alam1
1
Department of Business Administration, Noakhali Science and Technology University, Noakhali, Bangladesh
2
Department of Statistics, Noakhali Science and Technology University, Noakhali, Bangladesh

Email address:
*
Corresponding author

To cite this article:


Fatema Jannat, Mohammad Rubel Miah, Mohammad Omar Faruk, Shafiqul Alam. Empirical Analysis of Factors Influencing Economic
Growth Rate in Bangladesh. International Journal of Business and Economics Research. Vol. 9, No. 2, 2020, pp. 78-82.
doi: 10.11648/j.ijber.20200902.14

Received: January 12, 2020; Accepted: February 21, 2020; Published: March 10, 2020

Abstract: Economic growth rate plays an important role in the development of a country. Bangladesh has tremendous
success to increase its economic growth rate and now it is known as the fastest-growing developing country in the world. This
paper explores the important factors that influence the economic growth rate in Bangladesh. The data for the analysis is
extracted from the United Nations Conference on Trade and Development from 2000 to 2015. For bivariate analysis, the
correlation coefficient is measured and for multivariate analysis, multiple linear regression model is fitted. For the statistical
analysis, the statistical software R program is used. The bivariate analysis shows that gross national income, export
merchandise, import merchandise, foreign direct investment, population, remittance pay, remittance receive are correlated with
the gross domestic product. Pearson’s correlation between GDP and balance of payment, ICT import and ICT export is found
to be very low. The factors which are moderately or highly correlated with the GPD have been used in the multivariate model.
The most significant factors that influence the gross domestic product is gross national income and remittance received. The
study also found that export merchandise and import merchandise have a significant impact on the economic growth in
Bangladesh.
Keywords: GDP, FDI, Remittance, Economic Growth Rate, Import, Export

88.691 in June 1960 [3]. GDP annual growth rate in


1. Introduction Bangladesh averaged 5.84 percent from 1994 until 2018,
Economic growth is considered as one of the most reaching an all time high of 7.90 percent in 2018 and a record
important parameters for the development of a country. The low of 4.08 percent in 1994 [4]. Hence, GDP growth of
market-based economy of Bangladesh is one of the fastest Bangladesh has been 6 percent and above in the past decade
growing economies in the world. Bangladesh is classified or so with increasing exports, imports and remittance.
among the next eleven emerging market middle income Nowadays, most of the emerging countries’ crucial
economies and a frontier market [1]. Bangladesh is among objectives are ensuring economic growth and sustainable
the three fastest growing economies in the world, according development. Potential increase in output level is necessary
to the International Monetary Fund (IMF). It also ranked for all developing countries to meet various challenges like
Bangladesh is the 39th largest in the world in nominal terms, easing the balance of payments problem, embracing wave of
and 29th largest by purchasing power parity with a GDP of global integration to resolve domestic issues like
US$ 314.656 billion [2]. Bangladesh’s GDP per capita unemployment & inflation. To improve performance in
reached 1827.000 USD in June 2019, compared with economic growth requires positive changes in the level of
1675.000 USD in June 2018 [2]. The data reached an alltime production of goods and services. This process is made
high of 1827.000 USD in June 2019 and a record low of possible by various factors & their interaction with each
other. In an economy like developing countries, export
79 Fatema Jannat et al.: Empirical Analysis of Factors Influencing Economic Growth Rate in Bangladesh

growth is considered as a key determinant of production & remittance income of Tonga falls with an appreciation of the
employment growth. GDP’s rapid growth due to sound currency of the country. Likewise, the empirical research
financial control & regulations has contributed to its growth. found that personal characteristics like, education level,
The importance of population is crucial because it has being a male and type of employment have significant
significant impacts on the development and growth process positive impact on remittance inflow to the home country [9].
of a country. The trained and efficient labor force has made a Foreign Direct Investment (FDI) is also considered in most
notable contribution to GDP growth in Bangladesh. empirical studies as one of the key factors with a positive
Remittance and foreign direct investment are yet to rise impact on economic growth. The effects of foreign direct
significantly. Bangladesh received $15.5 billion in remittance investment on economic growth in developing countries and
last year, more than 15 percent year-on-year, according to the found positive relationship between FDI and economic
World Bank [5]. Remittance is one of the key drivers of the growth [10]. FDI generally has a positive impact on
country’s economic growth, accounting for 5.4 percent of the economic growth in developing countries as it helps to build
gross domestic product in the year. Therefore, Bangladesh’s physical capital, create employment opportunities, develop
per capita gross national income (GNI) jumped more than 9 productive capacity and enhance skills of local labor. The
percent to $1909 last fiscal year from $ 1,751 a year ago, study found that the increase in FDI inflows in South Asia
showed provisional official figure [5].“Bangladesh continues were associated with a many-fold increase in the investment
to be one of the fastest growing economies in the world. by national investors, suggesting that there exist linkage
Robust growth in industrial and service sectors, supported by effects between FDI and GDP [11]. The analysis on a panel
higher public and private consumption, have boosted of 84 countries, highlights in most cases a positive impact of
growth,” said World Bank Bangladesh Country Director FDI on economic growth, but also remarks that in countries
Robert J Saum [5]. To sustain this progress, this paper with the technological gap, FDI has a significant negative
attempts to identify the most important factors that influence impact on economic growth [12]. The determinants of FDI
the GDP growth rate in Bangladesh, GDP is taken as and its effect on economic growth in developing countries are
dependent variable and Foreign Direct Investment, Gross studied and results revealed that FDI has an important effect
National Income, population, ICT export, ICT import, on economic growth of third world countries by creating
Balance of Payment, Remittance pay, Remittance received, bridge between the gap of domestic savings and investment
Export, Import variables are taken as independent variables. and familiarizing the up to date technology and management
Though numerous studies have identified different factors, skill from developed countries [13]. Moreover, FDI is found
present study has used correlation coefficient & multivariate to have a positive and significant impact on growth when
regression analysis to assess the variables that affects the host countries have better level of initial GDP and human
economic growth of the country. To reach a final conclusion capital. Hence, FDI has significantly positive impacts on
to determine the factors influencing GDP growth rate in economic growth and domestic investments by evaluating the
Bangladesh, an extensive literature survey is conducted. prospects and challenges of FDI and its impact on economy
Finally, the findings, conclusion and policy recommendations in Bangladesh [14]. In terms of especially developing
have been presented in this study. countries, the relationship between foreign trade and
economic growth continues to be an issue keeping its validity
2. Literature Review in both theoretical literature and empirical literature [15].
On the other hand, many economists considered foreign
Accelerating the rate of economic growth of a nation poses trade as the “Engine of Growth” because it facilitates the
an essential issue in economic debate. Several researches specialization in the production of goods and services.
have been conducted on various macroeconomic variables to Economic theories suggest that export earnings reduce the
show the relationship among them. An attempt has been dependence on foreign aid, augment the base of
made to review the recent available literature on economic industrialization, increases foreign exchange earnings, create
growth seeking to determine and assess factors that may employment opportunities, helps in transformation of the
influence the economy and how they act on it. economic structure etc. Trade policy and economic growth
A series of studies have focused to determine the for Bangladesh by using co-integration and multivariate
relationship between remittance and economic growth. From Granger Causality test and results showed a long-run
micro and macro point of view, remittance constitutes an relationship among the three variables as well as feedback
important source of foreign exchange for the developing effects between exports and output growth and also between
countries. overseas remittances achieving a favorable balance imports and output growth in the short-run [16]. However, a
of payments and creating a new resources base for the group of Asian economies achieved high rates of economic
country [6]. Another study found that remittances have a growth and did so via a process that involves rapid growth of
long-term impact on the receiving economy only if these exports rather than substitution of domestic production for
flows are invested in long -run technology or used for capital imports [17]. By examining the process of Bangladesh’s
investment [7]. On the other hand, remittances exercise a trade liberalization and its impact on the growth, structure of
weak positive effect on long-term macroeconomic growth by exports, imports, GDP and other macroeconomic variables
using dynamic panel estimation [8]. The study found that with particular emphasis on export. Trade liberalization has a
International Journal of Business and Economics Research 2020; 9(2): 78-82 80

positive impact on the growth, that is, both anti-export bias one of the major causes of population growth and growth
reduction and import-GDP ratio have significantly impacted threat in developing countries [25]. Moreover, the higher
on exports in the long run [18]. population in many developing countries is a hindrance to
In the literature, inflation is one of the macroeconomic economic growth and development due to lack of other
factors considered most often as having a negative impact productive resources [26]. However, other empirical studies
directly or indirectly on growth [19]. Inflation can lead to demonstrated that an increase in labor is a factor favoring
uncertainty about the future profitability of investment economic growth [27].
projects especially when high inflation is also associated with
increased price variability. Inflation may also reduce a 3. Methodology
country’s international competitiveness, by making its
exports relatively more expensive, thus impacting on the The data for this analysis has been extracted from the
balance of payments. Although the authors acknowledge that UNCTAD (United Nations Conference on Trade and
the negative effect refers to the situations when inflation is Development) from 2000 to 2015. The objective of this
high and they find even situations where on the background research work is to examine the factors which influence the
of the existence of inflation some countries managed to GDP growth rate in Bangladesh. In this study, we have used
record economic growth. In addition, analyzing 5 CEE annual GDP as a dependent variable to analyze the economic
countries, during 1993-2007, this study finds a positive growth rate in Bangladesh. Currently, most of the countries
impact of inflation, attributed to measures taken by the in the world GDP is widely accepted as an indicator as to the
governments of these countries to maintain it at a low level measure of economic growth (Bogdon Florin Filip, 2015).
[20]. On the other hand, we considered ten independent variables
Poor basic infrastructures are a barrier to ICT adoption in FDI, GNI, BOP, population, remittance pay, remittance
DCs. To properly adopt and use ICTs, basic infrastructure receive, export merchandise, ICT import, ICT export and
requirements of electricity, trained technical workers, and import merchandise to assess the factors which influence the
communication networks, as well as commitment from the GDP growth rate in Bangladesh. Correlation coefficients
government and other policy makers, should be put in place have been measured to observe the relationship between
[21]. GDP and the factors. For multivariate analysis, a multiple
To calculate the national income of a country, one of the linear regression model has been developed. Our proposed
most widely used method is gross national income, or GNI. It regression model is as follows:
is the total domestic and foreign output claimed by residents
of a country, consisting of gross domestic product (GDP), GDP = FDI + GNI + Population + Remittance Pay +
Remittance Receive + Export Merchandise + Import
plus factor incomes earned by foreign residents, minus
Merchandise.
income earned in the domestic economy by nonresidents
[22]. GNI is a strong indicator of the standard of living of an For bivariate analysis, MS Excel has been used and for
average citizen in the country through dividing country’s multivariate analysis, the R program is used.
income by its population. By comparing a country’s GDP and
GNI, we can determine how much foreign aid or foreign
labor a country receives. If a country’s GNI is much higher
4. Result and Discussion
than their GDP, it means they receive a lot of foreign aid, 4.1. Bivariate Analysis
whereas if their GDP is much higher than their GNI, it means
that non-citizens make up a large portion of the country’s From table 1 we see that GDP and BOP are weakly
production [23]. negatively (-0.22) related. Weak and negative relation also
The effect of population on economic development is found in ICT export and ICT import with the response
studied by applying ordinary least squares methodology variable GDP. This means that BOP, ICT export, ICT import
inferred that economic growth is positively affected by have no significant influence over GDP. On the other hand,
population growth [24]. But the main problem is the all the remaining variables are highly positively correlated
management of problems associated with huge population with GPD, which means that with the increase in the value of
i.e. newly supplied labor force, providing them job these variables the GDP of Bangladesh will also increase.
opportunities and other basic facilities for life become a great The correlation between GDP and ExportMerchandise is
challenge for the policy makers and government. The 0.98, which means that there is a highly positive relationship
comparative trend of population growth determinants have between GDP and ExportMerchandise. The correlation
been analyzed between developing countries (Bangladesh, between GDP and Import Merchandise is 0.98, which means
Ethiopia, Indonesia, Mexico and Nigeria) and developed that there is a highly positive relationship between GDP and
nations (Germany and United States) and this trend analysis ImportMerchandise. The highly positive relationship is also
showed that fertility rate, crude death rate, birth rate, found in the variables FDI, GNI, Population, Remittance Pay
mortality rate, and life expectancy are the major determinants and Remittance Receive. The variables which found negative
of rapid population growth rate while youth dependency ratio and weak relationship with the dependent variable have been
of young people below the age 15 has also been attributed as excluded from the model for multivariate analysis.
81 Fatema Jannat et al.: Empirical Analysis of Factors Influencing Economic Growth Rate in Bangladesh

Table 1. Correlation table of GDP and independent variables.

Export Import ICT ICT Remittance Remittance


BOP FDI GNI Population
Merchandise Merchandise Export import Pay Receive
GDP -0.23 0.98 0.98 0.99 0.99 -0.15 -0.27 0.94 0.95 0.89

4.2. Multivariate Analysis:

To observe the impact of independent variables considered in this analysis over GDP a multiple linear regression model has
been constructed. The regression model we considered here is as follows:
GDP = FDI + GNI + Population + Remittance Pay + Remittance Receive + Export Merchandise + Import Merchandise.

Where GDP= Gross Domestic Product


GNI =Gross National Income
FDI = Foreign Direct Investment

Table 2. Multiple linear regression model.

Estimate Std.Error t value p-value Lower 95% Upper 95%


(Intercept) 4888.04 9830.19 0.50 0.63 -17014.99 26791.08
FDI 0.51 0.36 1.43 0.185 -0.29 1.30
GNI 0.95 0.03 32 2.09e-11 *** 0.89 1.02
Population -0.03 0.08 -0.45 0.66 -0.20 0.13
Remittance Pay 24.18 41.28 0.59 0.57 -67.81 116.17
Remittance Receive -0.59 0.15 -4.03 0.0024 ** -0.91 -0.26
Export Merchandise -0.41 0.15 -2.65 0.0242 * -0.75 -0.07
Import Merchandise 0.29 0.11 2.57 0.0280 * 0.04 0.55

Sig.codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘’ 1


Residual standard error: 534.2 on 10 degrees of freedom
Multiple R-squared: 1, Adjusted R-squared: 0.9999
F-statistic: 3.421e+04 on 7 and 10 DF, p-value: < 2.2e-16

Table 2 reveals that GNI is more significant (p-value: significant impact on GDP for the period of 2000-2015. The
2.09e-11, CI: 0.89 and 1.02) factor which influence the GDP correlation coefficient is measured for bivariate analysis and
growth rate in Bangladesh. The regression coefficient 0.95 multiple linear regression is performed as multivariate
indicates that for a unit change in GNI the GDP will grow analysis. Remittance receive, Export merchandise, Import
about 0.95. The variable population and remittance pay is merchandise and GNI are highly significant factors that
seems to have no significant impact on GDP since their p- influence the economic growth of Bangladesh. On the other
value is greater than the level of significance (0.05). From hand Population, Remittance pay and FDI have no significant
table 2 we found that remittance receive has significant impact on the GDP. FDI is considered to be a significant
influence (p-value: 0.0024 and CI: -0.91 and -0.26) on GDP. factor for a country for economic growth but our study
From table 2 we also found that the p-value for export reveals that it is insignificant for the economic growth of
merchandise and import merchandise is 0.02 and 0.03 Bangladesh. Further study is needed on FDI for its best
respectively which are less than the level of significance implementation in Bangladesh. The government of
(0.05) and are significant in GDP growth rate in Bangladesh. Bangladesh should take the necessary steps to create trained
From table 2 we observe that the p-value for FDI is 0.185 and efficient manpower for its population.
which is greater than the level of significance alpha (0.05),
this means that the effect of FDI on GDP is insignificant. FDI
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