A STUDY OF FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN BANGLADESH MR. MD. MAMUN HOWLADER ID:

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1 M.B.A. (International) /i A STUDY OF FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN BANGLADESH MR. MD. MAMUN HOWLADER ID: SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF INTERNATIONAL MASTER OF BUSINESS ADMINISTRATION, INTERNATIONAL PROGRAM, GRADUATE SCHOOL OF BUSINESS, SIAM UNIVERSITY, BANGKOK, THAILAND November, 2012

2 M.B.A. (International) /ii Graduate School of Business Siam University Master of Business Administration Title: A Study of Foreign Direct Investment and Economic Growth in Bangladesh Name: Mr. Md. Mamun Howlader Approved by advisor on:.. /. / Advisor (Dr. Vijit Supinit) Dean, MBA

3 M.B.A. (International) /iii DECLARATION I Md. Mamun Howlader, hereby declare that except for references to other people s work, which had been acknowledged, this research paper is the outcome of my independent investigations in the area of study. Signature: Name: Mr. Md. Mamun Howlader Student ID: Date:

4 M.B.A. (International) /iv ABSTRACT Foreign Direct Investment (FDI) is a vital role for developing country all over the world. FDI is an important part of the industrial development, economic transition, business liberalization and macro-economic growth story in Bangladesh over the last decade. FDI plays a dominant role in the economy of Bangladesh through accelerating Gross Domestic Product (GDP), export and domestic investment followed by overall economic growth. So it is vital for a developing country like Bangladesh to carry out effective measures in protecting the prospective foreign investors so that they can get a congenial atmosphere to invest their capital. Bangladesh would be the most attractive location for FDI investors. (A.R. Chowdhury., 2012), Over the last few years, foreign investors sentiment towards Bangladesh has improved. The Doing Business Indicates recently ranked Bangladesh 9 th among the countries that have improved significantly in business start-ups. As we see an inflows of $666m foreign direct investment in 2007 which rose significantly in 2008 to $1086m. As of 2010, inflows of foreign direct investment recorded to $571m. Factors affecting FDI in Bangladesh are bureaucracy, weak infrastructure, political unrest, lack of good governance, lack of adequate information and ineffective judiciary system. In spite of recognizing some barriers, most of the world best investors appear to be satisfied about the present investment in Bangladesh and expressed their interest in making further investment in the country. Bangladesh has some effective competitive advantages that are natural resources, human resources, GSP facility and sectors for prospective investment are textile, frozen foods, leather, agro-based industries, and information technology and so on. The Board of Investment (BOI) has recently adjusted its investment promotion strategies, from attracting across-the-board investment through board-based incentives to focusing on investment that develops the workforce with special expertise, placing more emphasis on the development and transfer of skills among different levels of the workforce, supporting R&D and technology transfer, and fostering innovation to attract quality investment. We found that the most attractive factor for FDI flow to Bangladesh is the world best low cost of labour in country and attractive location. The study suggested the following recommendations towards ensuring that FDI is put into

5 M.B.A. (International) /v good use; Political reformation ensure of good governance; Dynamic and independent government agencies, improve coordination among them, and ensure accountability and transparency, maintaining incentives and benefits in the export promotion zone. Developing diplomatic relations and devoting efforts to shift FDI track; Ensuring uninterrupted power and energy supply; Government can encourage and provide special incentive packages for certain period of time to local and foreign investors who will invest in this sector; Government should provide necessary infrastructural facilities to the government agencies for facilitating FDI flow to achieve efficient implementation of FDI policies; Bureaucratic bottlenecks related to FDI should be more simplified.

6 M.B.A. (International) /vi ACKNOWLEDGEMENT Firstly, my sincerest gratitude goes to my parents (Abdul Awal Howlader and Hasina Begum) who have given me so many inspirations, guidance, financial support, and their loving care to fulfill the International Master of Business Administration (IMBA) programme. My special gratitude also goes to Dr. Vijit Supinit, Dean, Graduate School of Business, Siam University, Thailand (Former Governor General of The Bank of Thailand). He is a very kind and generous person. He has full store of knowledge but he never shows off himself. He behaves with the student as a friend, as a family member and as his children. I am really proud to be part of students who got advice from him during my Independent Study. Again, my sincerest thanks and respect goes to Dr. Toni Momiroski, Associate Professor, MBA Graduate School of Siam University, Thailand. He is very kind man. His kindness and guidance helps me so much to write my Independence study. I will never forget my bosom friends who are seniors or juniors whatever they are (especially, Phra Lablu Barua, Gabriel Baroi, Kani Irfan, Abdallah Yukubu, Sunil Kumar Patel and Mr.Tossaporn Zungsontiporn ) for helping and suggesting necessary correcting to complete my Independent Study. I am Bangladeshi and my mother tongue is Bengali. As a non Native English writer I tried my best to follow the grammatical rules and regulation based on as much as I can. So, I apologize for any inconvenient grammatical errors. Finally, I would like to express my deep graduate to all those who were with me and helped me to finish my Independent Study.. Md. Mamun Howlader 2012

7 M.B.A. (International) /vii List of Abbreviations ASEAN BB BBS BEPZA BIIF BIWTA BOI BOP BPDB BTRC DESA DSE EPZ EU FCL FDI FOB GDP GSP ICSID IMF JETRO LGED MIGA MOFA NBR NFCD NRB OPIC Association of South East Asian Nations Bangladesh Bank Bangladesh Bureau of Statistics Bangladesh Export Processing Zones Authority Bangladesh Infrastructure Investment Fund Bangladesh Inland Water Transport Authority Board of Investment Balance of Payment Bangladesh Power Development Board Bangladesh Telecommunication Regulatory Commission Dhaka Electric Supply Authority Dhaka Stock Exchange Export Processing Zone European Union Full Container Load Foreign Direct Investment Free on Board Gross Domestic Product Generalized System of Preference International Center for Settlement of Investment Disputes International Monetary Fund Japan External Trade Organization Local Government Engineering Department Multilateral Investment Guarantee Agency Ministry of Foreign Affairs National Board of Revenue Non-resident Foreign Currency Deposit Non Resident Bangladeshi Overseas Private Investment Corporation

8 M.B.A. (International) /viii PF PPP RHD RMG SAARC SAFTA SEC STOL UN UNCTAD WASA WIPO WIR WTO Production Function Public Private Partnership Roads and Highways Department Ready-made Garment South Asian Association of Regional Cooperation South Asian Free Trade Area Securities and Exchange Commission Short Take-off and Landing United Nations United Nations Conference on Trade and Development Water Supply and Sewerage Authority World Intellectual Property Organization World Investment Report World Trade Organization