Does Good Governance Matter for FDI Inflows? Evidence from Bangladesh

Abstract

FDI is considered as an essential factor of economic growth of a country. But, as the global FDI increases over time, competition intensifies among developing countries for attracting FDI. However, FDI of Bangladesh is very insignificant (0.913%) against its GDP during the last 22 years. So, the main purpose of the study is to find out the factors liable for our poor FDI inflow in Bangladesh. Both governance and macroeconomic variables from 2001 to 2022 were taken in the study. The study has employed an OLS method to evaluate the parameters of the model. The results found that three governance variable--control of corruption, rule of law and voice and accountability were negative on FDI inflow in Bangladesh. Among the macroeconomic variables, corporate tax rate, exchange rate and investment level of our country were found negative against FDI. In contrast, the study found wage rate, interest rate and inflation were positively related with the FDI in most models. The findings of the study thus creates a wake-up call for policy makers to give due attention to enhancing good governance environments and macroeconomic stability in Bangladesh.