Foreign Direct Investment in Bangladesh: Analysis of Policy Framework, Impact, and Potential

Abstract

The paper examines the policy framework toward FDI including monetary and non-monetary incentives offered to attract FDI, analyzes the trend and sources of and the sectors attracting FDI inflows, and the potential for FDI in Bangladesh. The analysis is based on data collected both from primary and secondary sources. Major sectors attracting FDI include RMGs, power, textile and wearing, telecommunications, banking, gas, and petroleum. The analysis shows that fiscal/nonmonetary incentives alone and competitive advantage in factor endowment (cheap labor) are not enough to attract additional FDI into Bangladesh. The key is to adopt proactive policies for creating and maintaining an FDI-friendly business environment in the country Bangladesh. For attracting more FDI into Bangladesh, the efforts need to include, among others, increased infrastructure spending especially in digital architecture, creating functional one-stop investment service center, emphasis on skill training to facilitate technology transfer, targeted measures to attract FDI into backward and forward linkage industries, participation in regional and global value chains.