Article-3 Key Economic Growth Factors of a Frontier Market: Evidence from Bangladesh

Abstract

This paper attempts to determine the macroeconomic factors that might have a major impact on the economic growth rate of Bangladesh. ARDL (autoregressive distributed lag) bounds testing approach has been utilized on a dataset covering 44 years from 1976 to 2019. The result of the bounds test confirms a long run relationship among foreign direct investment (FDI), gross domestic savings (GDS), real interest rate (RIR), gross capital formation (GCF), total reserves (TRV), broad money supply (GM2), and gross domestic product (GDP). The absolute value of negative error correction term (ECT) highlights the annual adjustment rate of around 15 per cent of the disequilibrium in GDP to reclaim the long run equilibrium. GDS, RIR, TRV, and GM2 are statistically significant growth factors whereas GCF and FDI are not. GDS and TRV affect GDP positively. On the contrary, RIR and GM2 have a negative impact on GDP. The result of the pairwise Granger causality test indicates the existence of both the unidirectional and the bidirectional causality in the variables. Policy makers, regulators, and other stakeholders might be keen on these findings for cautious formulation and watchful implementation of policies so that a stable macroeconomic environment can be created and maintained for sustainable economic growth.