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Do Foreign Grants and Capital Formation Indeed Impact Economic Growth? An Empirical Evidence from Bangladesh

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  • K M Saemon Islam

    (Christian-Albrechts-Universitat zu Kiel, Germany)

  • Gautam Kumar Biswas

    (Southern Illinois University Carbondale, USA)

Abstract

The paper examined how the growth of the foreign grants and the growth of gross fixed capital formation impact the growth of GDP in Bangladesh. We studied the relationships between those variables for a period spanning between 1983 and 2017. The Johansen cointegration test indicated that there is a long-run relationship between the variables. Therefore, by employing a vector error correction model (VECM), we found that previous year’s divergence between the variables adjusted by 69% in the following year. The study also found that both foreign grants, and the gross fixed capital formation had a positive impact on GDP growth in Bangladesh.

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Handle: RePEc:epw:develo:v:3:y:2023:i:3:id:15280
DOI: 10.24018/ejdevelop.2023.3.3.280
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