Proceedings of 13th Asian Business Research Conference

Proceedings of 13th Asian Business Research Conference
26 - 27 December, 2015, BIAM Foundation, Dhaka, Bangladesh, ISBN: 978-1-922069-93-1
Effects of Foreign Direct Investment (FDI) on Bangladesh’s
Labor Market
Mahjabeen Mamoon and A. F. M. Ataur Rahman
Growth isa primary agendum for all developing countries. Countries mobilize resources
into different sectors tostrengthen, diversify and enhance their productivity.Empirical
studies have found support in favor of conducive role of Foreign Direct Investment (FDI)
on growth.Therefore it is not surprising that countries try to attract a good portion FDI
through multiple international channels.
Bangladesh is no exception in this trend. Prior to 1980s, the country could heavily rely
on official foreign aid to address its resource scarcity, but with the dwindling availability
of foreign aid and increasing global economic integration, it treats FDI as a potential
stimulus for rapid growth since then. To attract FDI government of Bangladesh has
taken policy decisions favoring such inflow.
However, investment from abroad is not quite benign in the sense that it interacts with
local parameters and can sometimes create uncomfortable consequences, one of which
could be employment loss. Since employment is a politically sensitive parameter this
issue is addressed in the literature in some details.
The focus of this paper is to investigate to what extent FDI creates an impact in the
Bangladeshi labor market.Using annual data starting from 1991-2013 preliminary results
show that there exits significantly positive relationship between unemployment rate
andthe variable the net inflows of FDI as a % of GDP after controlling for gross capital
formation (% of GDP),domestic credit provided by financial sector (% of GDP) and the
general wage rate index of the country.This indicates that as the share of FDI to GDP
increases it is actually leading to a rise in the number of people unemployed which to
some extent is uncomfortable though not unusual in literature.
The rest of the paper will be organized as follows. Section 1 will pitch the concept.
Section 2 will briefly summarize the literature on FDI and its connection with labor
market. Section 3 will highlight methodology of the study followed by a discussion on
data. The econometric results are set out and will be analyzed in Section 5. Section 6
will present concluding remarks.
Mahjabeen Mamoon (corresponding author), Lecturer, Department of Economics, North South University,
Dhaka, Bangladesh, Email:
A.F.M. Ataur Rahman, Professor, Department of Economics, North South University, Dhaka, Bangladesh,