Does Asymmetric Relation Exist between Exchange Rate and Foreign Direct Investment in Bangladesh? Evidence from Nonlinear ARDL Analysis

Abstract

The study aims to investigate the pattern of relationships such as symmetric or asymmetric, between exchange rate and foreign direct investment in Bangladesh by applying Autoregressive Distributed Lagged (ARDL) and nonlinear ARDL. In this study, we employed quarterly data for the period of 1974Q1 to 2016Q4. Data were collected and aggregated from various sources namely, Bangladesh Economic Review published by Ministry of Finance and statistical yearbook published by Bangladesh Bureau of Statistics and an annual report published by Bangladesh Bank. The relationship between exchange rate and FDI inflows attract immense interest in the recent periods, especially for developing countries' perspective. The results of the study ascertain the long run relationship between FDI, exchange rate, monetary policy, and fiscal policy. Considering the asymmetric assumption, the findings from NARDL confirm the existence of a long-run asymmetric relationship in the empirical equation. In the long run, it is observed that positive change that is the appreciation of exchange rate against USD decrease FDI inflows and negative shocks results in grater inflows of FDI, however, the positive shocks produce higher intensity that negative shocks in Exchange rate. For directional causality, the coefficients of error correction term confirm long-run causality, in particular, bidirectional causality unveiled between FDI and exchange rate.

An Asymmetric Investigation of Remittance and Trade Openness Impact on Inequality: Evidence From Selected South Asian Countries

“…inequality by applying the nonlinear framework proposed by Shin et al (2014). NARDL, according to Laib and Abadli (2018), Qamruzzaman et al (2019, Qamruzzaman and Karim (2020), and Qamruzzaman and Jianguo (2020a), is a new technique that allows modeling asymmetric effects in both the long and the short run by exploiting partial sum decompositions of the explanatory variables The superscript ***, **, and * denote the level of significant at a 1, 5, and 10%, respectively.…”

“…Many studies find that remittances have a positive impact on economic growth and development (Catrinescu et al, 2009;Feeny et al, 2014;Hatemi-J and Uddin, 2014), stimulate financial developments (Chowdhury, 2011;Qamruzzaman and Jianguo, 2020b), and increase investments (Zhu and Luo, 2010;Lartey, 2013). Although some studies show that remittances reduce income inequality (Qamruzzaman et al, 2019), others find that such transfers deteriorate (Acosta et al, 2006) or have no effect on inequality (Brown et al, 2013;Beyene, 2014). According to Stark et al (1986) and Durst and Ståhle (2013) remittances increase income inequality because it is the wealthy households that assist their family members to migrate most compared with poorer households.…”

Impact of Information and Communication Technology on Economic Growth and Population Health in Malaysia

“…Third, if cointegration confirms among variables, then it is a useful approach for both short-run and long-run dynamics. Fourth, this is the only approach that provides us with some explicit tests through which we can explore that exclusive cointegration exists or not instead of assuming vector existence (Nkoro & Uko, 2016;Nguyen, & Ngoc, 2020;Qamruzzaman, Karim, & Wei, 2019;Le, Duy, & Ngoc, 2019;Ali & Fei, 2016). The ARDL model can be specified as:…”

Inward Foreign Direct Investment and Trade Openness in Vietnam: A Nonlinear Autoregressive Distributed Lag Approach

“…Compared with previous studies, this result is the opposite of the evidence proposed by Kim (2010) and Akin (2019)where the most important determinant of FDI is political stability, and there is a causal relationship from political stability to other economic factors. It is mooted that the collected data from the World Bank has not sufficiently reflected the character of political stability affecting the economy mainly because this issuance includes many factors such as fiscal policy uncertainty, monetary policy uncertainty, and trade policy uncertainty (Qamruzzaman et al 2019).…”

“…Bound test, mainly based on the F statistic to test the co-integration between observed variables. Accordingly, Pesaran et al (2001) and Qamruzzaman et al (2019) have provided more concrete evidence to demonstrate the co-integration relationship in the long-run model. Thus, these tests aim to define the long-run relationship that exists among these elements by handling an F-test with the hypotheses:…”