A study of major determinants and hindrances of FDI inflow in Bangladesh.

Foreign Direct Investment (FDI) is perceived as an important tool to achieve industrial development and growth if Bangladesh wants to improve socioeconomic indicators. This study analyzes the major determinants and hindrances of FDI inflow in Bangladesh. FDI related policies are discussed to identify the objectives of these policies. Qualitative research method is used in this study. Primary and secondary data are employed to address the research objectives. There are two target groups: foreign investors in Export Processing Zones (EPZs) in Dhaka and Chittagong and Public policy makers. The data reveals that after adopting the liberalized policy measures in 1990s there has been a significant increase in the FDI inflow. Both foreign investors and policy makers identified low cost labour as the major determinant of FDI inflow in Bangladesh and shown their satisfaction regarding the outcomes of FDI related policies. In terms of barrier to FDI inflow the most significant barrier identified is infrastructural constraint. The study further revealed that in spite of having investment-friendly policies there are some implementation problems at the levels of facilitating agencies. As Bangladesh is facing infrastructural constraints, special incentives packages can be offered as policy incentive to the investors for certain period who will invest in this sector. Beside this necessary
logistic support, more simplified bureaucratic procedure, prioritized investment according to the need of the regional area/ sector can contribute to increased FDI inflow to Bangladesh. Further research need to focus on the combination of market seeking and export oriented FDI in Bangladesh.

DIR Research Series, Working Paper No.144
ISSN: 0904-8154