Ready-made Garments, FDI and Total Exports of Bangladesh: A Time Series Analysis

Abstract

This study examines the long-run and short-run causal relationships among readymade garments export, total export earnings, and net foreign direct investment inflows utilizing data from the financial year 1996-97 to 2019-20. The autoregressive distributed lag bounds test discloses the existence of a long-run relationship among the variables. This study also employed the Johansen cointegration test to supplement the results of the ARDL approach. This cointegration test confirms the presence of two cointegration equations. In addition, the Toda-Yamamoto test is performed to demonstrate the existence of short-run and long-run relationships among the variables. The results indicate that there is bidirectional causality between RMG exports and total exports in the short run as well as in the long run. Another important aspect of this study is that there is bidirectional causality between FDI and total export earnings in the short run but there is a unidirectional causality in the long run. The analysis also gives insights like single sector dominance, problems that existed in the RMG sector, and problems and prospects of FDI inflow. Further, keeping in view with these problems, the study urges pragmatic feasible measures for sustainable export growth.