Do Foreign Direct Investment and Foreign Remittances Drive Economic Growth in Bangladesh? New Evidence from an Augmented ARDL Approach, 1990–2025 (Research Square)

Summary

• In the augmented model a stable long-run relationship exists (F = 8.25; t = −4.22), with about 17% of any disequilibrium corrected each year, anchored by domestic fixed investment (elasticity 0.97).p.2
• Foreign remittances reached US$33.9 billion in 2025, equivalent to 7.4% of GDP and about nineteen times the US$1.8 billion of net FDI received in the same year.p.3
• Real GDP expanded by an average of about 5.5% a year between 1991 and 2025.p.3
• Real GDP rose from US$52.9 billion in 1990 to US$348.7 billion in 2025 (2015 prices).p.18
• A model with only output, FDI and remittances shows no cointegration (F-statistic of 4.16).p.21

Key insights

1. FDI has averaged about 0.5% of GDP over 2016–2025, small by regional standards.p.3
2. Real GDP growth slowed to 4.2% in 2024 and 3.5% in 2025 just as remittances surged.p.3
3. A meta-analysis of 538 estimates from 95 studies finds that about 40% of remittance–growth estimates are positive, 40% insignificant and 20% negative.p.4
4. The remittance-to-GDP ratio climbed to 10.6% in 2012, fell to 4.6% by 2017 and recovered to 7.4% in 2025.p.18
5. A 1% permanent increase in real gross fixed capital formation is associated with a 0.97% increase in real GDP.p.22
6. Adding a COVID-19 dummy strengthens the evidence of cointegration (F = 10.92, t = −4.57), while the FDI and remittance elasticities barely change.p.25
7. In none of the eight specifications is the FDI or remittance elasticity positive and significant.p.26
8. Toda–Yamamoto tests show neither FDI (p = 0.993) nor remittances (p = 0.250) Granger-causes output.p.27