Open AccessThe Impact of key Macroeconomic factors on Economic Growth of Bangladesh: a VAR Co-integration Analysis
Author(s) -
Md. Arphan Ali,
Md. Khaled Saifullah,
Fatimah Kari
Publication year - 2015
Publication title -
international journal of management excellence
Language(s) - English
Resource type - Journals
ISSN - 2292-1648
DOI - 10.17722/ijme.v6i1.820
Subject(s) - economics , variance decomposition of forecast errors , interest rate , foreign direct investment , order (exchange) , capitalization , short run , monetary economics , real interest rate , market capitalization , macroeconomics , vector autoregression , investment (military) , econometrics , finance , stock market , context (archaeology) , paleontology , linguistics , philosophy , biology , politics , political science , law
This study analyzes the impact of key macroeconomic factors on economic growth of Bangladesh from the period of 1988 to 2012.The key macroeconomic factors studied are market capitalization, foreign direct investment and real interest rate. This study also examines the long run and short run relationship between the economic growth and capital market, foreign direct investment, and real interest rate by using vector autoregressive (VAR) model. The VAR results suggest that the market capitalization, foreign direct investment and real interest rate have impact on economic growth in the long run, but in short run it does not have any predictable behavior. The variance decomposition results also conclude the same result as VAR model. All variables have the long run effects on economic growth but it does not have in short run, and the effects increases with time. Based on the finding, this study suggests that the government should come out with the appropriate macroeconomic plan and policy to draw more inward foreign direct investment, increase market capitalization and stabilize real interest rate in order to faster the economic growth in future. As finding of this study shows that these factors do not have significant impact on economic growth in Bangladesh in the short run