1.

0 Introduction

FDI refers to is a direct investment into production or business in

a country by an individual or company of another country, either
by buying a company in the target country or by expanding
operations of an existing business in the country. Foreign Direct
Investment which is a passive investment which is passive
investment in the securities of another country as stock and
bonds. Foreign direct investment occurs when a firm invests
directly in facilities to produce and /or market a product in
a foreign country.FDI plays a dominant role in the economics of
Bangladesh
through accelerating
Gross Domestic
Product(GDP),export and domestic investment followed by
overall economic growth. The objective of this term paper is to
find out the major effect of FDI on industrial productivity of
Bangladesh. Foreign direct investment (FDI) enables a capital
poor country like Bangladesh to build up capital, avoid threat to
unemployment develop productive capacity. Conventional
wisdoms have it that firms with foreign equity tend to be more
productive. This could be due to the firm specific tangible assets
such as exclusive technology and product designs, or the
intangible know-how embodied in foreign equity such as
marketing, networking and sourcing. Such assets may be more
readily available in big multinational corporations (MNC). As such,
being part of MNCs allow the local subsidiaries with foreign equity
to gain access to these assets, which in turn make them to
produce more output given the same level of inputs, and thus a
higher level of total factor productivity (TFP) than the solely
domestic owned firms.

1.1 Background Of The Study

Foreign Direct Investment is one of the vital force to boost up the
economy. Industrial productivity is an pre-requisite for economic
growth of a developing country like Bangladesh .Bangladesh is
basically a country of agrarian economy .For her economic

development industrial economy is imperative. So Bangladesh is

gradually moving to industrial economy. Researchers have
marked FDI as an important factor
in accelerating industrial
productivity. It helps the country in building up infrastructure,
creating employment, enhancing skills of the labor force of the
host country through transferring technological knowledge and
managerial capability that ultimately help in the increase of
domestic productivity.

During 1980s ,FDI to Bangladesh was very little and mostly

focused
in banking and
a few other sector. Bangladesh
gradually attracting FDI in industrial sector in the purpose of
I increasing productivity. Since 1996
Bangladesh started
attracting FDI in energy and power sector , economic reform
as well as unexplored gas and oil resources . In 1972,annual
FDI inflow was 0.09 million USD and in 1996 , it become 2
31.61 million USD which rose significantly in 2008 million
USD which declined
to 913.32 million USD in 2010(Source:
Bangladesh Board of Investment).

1.2 Objectives of the study:

To find out the impact of FDI on industrial productivity.

1.3 Limitation of the study:

The study has the following limitations:
One of the main limitations of the study was inadequate
access to information.
The time was insufficient to know the in-dept.
It was very difficult to collect the information from various
personnel related to industrial production.
Because
of the
limitations of information, some
assumption was made. So there may be some personal
mistake in the report

2.0 Literature Review

2.1 Key Definition:
FDI is generally considered as the best way to attract modern
technology and management skills. Multinational Enterprises
(MNEs) are a source of capital, employment, technology,
managerial skills and global distribution networks. These benefits,
however, as has been argued vary with respect to the
characteristics of different sorts of FDI. This probably led to
arguments advocating the promotion of FDI that is better in some
way. This development is important to some extent which implies
that some types of FDI are more deserving of incentives than
others.

2.2 The impact of FDI on industrial productivity identified by

reseasearcher:
There is a global race for accelerating FDI .But how much it can contribute to
host countrys productivity incensement and reducing import of product
is a matter of assessment.
Ailken and Harrison(1999)have evaluated the contribution of FDI on industrial
sector.and found that it has positive effect because in helps to format
capital,bring technology and other factors of production..

Rothgeb (1984)used his model to explore the impact of foreign investment

on the growth of Bangladesh and found that FDI has a positive impact on
growth.He also found a strong positive effect of the change in the level of
domestic investment on growth.
Quader,Syed Manzur(009)applied extreme bounds analysis to the data of the
various catalyst variables of FDI inflows in Bangladesh.They found FDI and
domestic investment have a positive effect on productivity inncreasemenr
and the number of employment.
Mallampally and Sauvant (1999) states that FDI is widely though to bring with
it into the host country a bundle of productive assets, including long term
foreign capital entrepreneurship ,technology,skills,innovative capacity and
managerial, organizational and export marketing know how.

3.0 Methodology of the Study

This section explains the methodology of research to develop the
answer
to the research questions. At first the research
questions
are addressed and then the hypotheses have
developed . Next sampling frame and data collection procedure
has been discussed. Finally
this section tests the validity and
reliability analysis of the data.
This study addresses following questions by analyzing literature
review:
If FDI have the positive impact of domestic industrial
productivity
if have, how much domestic industrial productivity has
increased in recent year?
In which sector foreign investor are eager to invest more?

 the most attractive industrial sector of FDI and its

current productivity statistics?
the relation between FDI and increased productivity and
export possibility of Bangladesh.
Research model and hypothesis:
A research model has identified to find out the effect of FDI on
industrial productivity. The model is as follows:
The Productivity Spillover Model: which analyzing if domestic
firms gets benefits from FDI firms.
Primary data:
Primary data are collected in the course of conducting oral
discussion with the officers and production manager of different
industry.
Secondary data:
These are collected from books, Annul Report FDI, different
magazine on industrial productivity.

4.0 An overview of FDI in Bangladesh

4.1 Investment Registration Statistics in
Bangladesh:
The industrial investment mainly consist of private versus public,
local versus
foreign investment. The analysis of industrial
investment status will provide good information as to how FDI is
used. The economy of Bangladesh has been gradually drawing
the attention of private sector investors since its opening up
in early 1990s. Manufacturing is becoming increasingly vibrant
claiming a significant share in the total investment.

Year

Proposed Local
Investment

Proposed Foreign
Investment

Total Proposed
Investment

Project

US$
(Million
)

Project

US$
(Million)

Proje
ct

US$
(Million)

2005- 1754
2006

2662.3
1

135

3621.15

1889

6283

125%

2006- 1930
2007

2848.9
8

191

1728.26

2121

4577

-27%

2008- 1336
2009

2480.7
2

132

2137.53

1468

4618

-21%

2009- 876
2010
*

1831.4
4

92

617.68

968

2449

27%

Total

12657

693

8892

8204

21549

7511

Growt
h

Source: Bangladesh Economic Review (February 2010)

During FY 2005- 2006 to FY 2009 -2010 , cumulative private
investment registered with Board of Investment(BOI), the apex
private investment promoting and facilitating body, total U$
$ 21,549 million. The registered
investments consists of
58.74 percent as local and 41.26 percent as local and 41.26
percent as foreign (100 percent and Joint Venture). In
the
above table presents the time series data during FY 20052006
to FY 2009 2010. In
FY2005-2 006,total private
investment registered amounted U$$6283.46 million, whereas
in 2009-2010 it reached U$$ 2449.12 million 2008-2009
experienced
a 27
percent
in the
overall
investment
comprising of -12.45% growths in local and 171.51% growth in
foreign investment. See the table
in
above
for
more
information.

4.2 Foreign Private investment projects

register with Bangladesh:
Textile and service are the two most growing sectors in
FY2009-2010. Agro based industry also growth in FY 2009-2010

compared to FY 2008-2009.Simultaneously ,total share of Agro

based industry grew 59 units in 2009-2010.
S.L
No

Sector

No. Of
Unit

Investment
In US$
(Million)

Employment
Opportunities(pers
on)

Agro Based

59

154.29

24434

Chemical

65

1985.94

6147

Engineering

57

38.96

4388

Food and Allied

13

19.11

1662

Glass and Ceramic

8.19

328

Painting and
Packaging

2.27

325

Tannery and Rubber

Product

4.01

602

Textile

115

221.26

84578

Service

91

4575.90

18758

10

Miscellaneous

2.83

735

421

7012.77

14957

Total

Source: Investment Implementation Monitoring Cell (IIMC), Board

of Investment.
Table 2: sector-Wise Distribution of foreign Private investment
projects register with BOG from FY 2009-2010

4.3 Export Performance of Garment

Sector

The past few years have witnessed an expansion of Bangladesh

garment export to the world market. In 1998, the total value of
garment export from Bangladesh was about US$3.8 billion, it
increased to US$4.2 billion in 2001 and settled at US$3.6 billion in
2003. This Information is obtained from the United Nations
Comrade Database according to the reporting of the Bangladesh
government. Figure 1 presents the breakdown of the aggregate
export of the Bangladesh garment sector by destinations, in 1998,
2001 and 2003. In both 1998 and 2001, the share of EU in
Bangladesh garment export was about 50 percent, closely
followed by the US at 45 percent, while other countries,
noticeably Canada, made up the remaining 5 percent of
aggregate garment export. In 2003, the importance of EU further
increased to 58 percent, while the share of the US dropped to 37
percent.

Figure 1: Breakdown of Garment Export

The surprising fall in the garment export to the US could be due to
transshipment or misclassification of goods. Based on US custom
data from the US International Trade Commission (USITC),

garment export to US from Bangladesh in fact has been steadily

climbing from US$1.5 billion in 1998 to US$1.8 billion in 2003. In
2004, the value of garment export from Bangladesh further
increased to US$1.9 billion, which makes Bangladesh the 10 th
largest garment supplier for the US market. Figure 2 presents the
values of garment imports of US from 1998 to 2004 by major
exporting countries. In 2004, the top ten garment exporting
countries to the US market and their market shares are China
(16%), Mexico (10%), Hong Kong (5.8%), Honduras (4.1%),
Vietnam (3.7%), Indonesia (3.6%), India (3.4%), Dominican
Republic (3.1%), Guatemala (2.9%) and Bangladesh (2.8%).

Figure 2: Breakdown of Major Garment Exporters in the US

Market
We further use a firm level export data set obtained from the
Textile Unit of the Export Promotion Board (EPB) of Bangladesh to
analyze the export performance of the Bangladesh garment
sector. This information is compiled from those firms that applied
for Country of Origin Certificates in 2004. This certificate is often

requested by the importing countries to verify the origins of the

imported goods in order to grant trade preferences.
In this firm level data set there are 2387 garment firms exporting
in 2004. The total value of garment export is US$5.7 billion, with
more than 400 million dozens of garment exported. Overall 57
percent of garment export headed to the EU, 20 percent for the
US and the remaining 23 percent went to the other countries such
as Canada and Australia. Table 1 presents the breakdown of
garment export volume by destinations.

Description

Quantity (dozen)

Value (US$)

EU under GSP

319,718,411

3,244,562,889

Others

32,044,542

1,306,109,811

USA with quota

42,196,576

976,267,029

USA without quota

19,785,482

159,150,271

Total

413,745,011

5,686,090,000

Table 1: Garment Export by Destination, 2004

In terms of the distribution of firms across different markets in
2004, there are 1967 firms exporting under GSP, mainly to the
European market, 1039 firms exporting to the US, of which 709
export under quota allocations, and 1231 firms exporting to other
countries. Figure 3 presents the distribution of firms by export
destinations.
Among these firms, 46 percent only supply to one market, 34
percent supply to two markets, 14 percent to three markets, and
5 percent to all four markets. This is clearly presented in Figure 4.

Figu
re 3: Number of Firms in Different Markets

Figure 4: Number of Firms vs. Number of Markets

Figure 5 presents the choice of export markets of Bangladesh
garment exporters according to the number of export market the
firms supply.
It is very clear that EU is the most popular
destination, especially among firms that have only one export
market. Among the 1109 firms that only supply one market,
nearly 850 firms concentrate on EU which is about 76 percent.
The US market appears to be toughest to break in among this
group of firms, less than 8 percent only export to the US with and
without quota.
For firms that supply two markets, both the EU and the others are
the favorites. Together, they account for 80 percent of the
markets among the 1640 firms that export to two markets. The
US in quota market is popular for firms that export to more than 2
markets.

Figure 5: Market Choice by Firms with Different Markets

In addition, according to Eaton, Kortum and Kramarz (AER, 2004)

who study the export performance of French firms, the number of
markets a firm supplies reflects the productivity and
competitiveness of the firm in the world market. The above
distribution of firms implies that more than 35 percent of
Bangladesh garment exporters participate in world markets
widely with at least 3 export destinations, and are thus very
competitive. This is quite evidence in Figure 6, when we plot the
unit value of garment export (left axis) and total export value
(right axis) against the number of export destinations. Firms that
export to more destinations tend to have higher average unit
values and larger in size, with the former reflects better quality
and the latter indicates greater scale economies, both signal
higher productivity of the firms. The differences in unit values
and total size among firms with different number of markets are
statistically significant.

Figure 6: Exporting and Productivity

4.4 Preliminary Findings Based on Firm Survey
Firm level survey was conducted from the period of November
2004 to April 2005, which covers a stratified random sample of
350 firms, which is about 10% of the total population of the
garment firms currently operating in Bangladesh. After cleaning
up the data to exclude outliers and firms with incomplete
information, there are a total of 231 firms in the unbalanced final
panel data set of 1026, from 1999 to 2003. In this unbalanced
panel data set, the composition of sub-industries of knitwear,
sweaters and woven is 24%, 8% and 68% respectively. Among
the sampled firms, 13% have positive foreign equity, while the
remaining 87% are purely domestic owned. Moreover, 15% of the
sampled firms are in the Dhaka and Chittagong EPZs, 63% in
Dhaka and 15% in Chittagong.
Tables 2-4 and Figures 7-9 present the sample means of the key
variables of the sub-industries of knitwear, sweaters and woven,
by foreign versus domestic firms. It is clear that FDI firms are in
general larger in sales, in exports, they purchase more material
inputs, including imported materials, they hire more employees,
including production workers. FDI firms also have larger capital
stock and investment. All these suggest that FDI firms are larger
in scale and presumably more profitable and productive. To
formally study the productivity superiority of FDI firms, and the
possible productivity spillover to domestic firms, we will need to
first estimate firm level productivity for the firm sample. The
estimated firm productivity is then relate to the ownership of the
firms, and the relationship between productivity of domestic and
FDI firms in the same sub-industries will be statistically examined.

Table 2: Summary for Knitwear

Figure 7: Summary for Knitwear

Table 3: Summary for Sweater Industry

Figure 8: Summary for Sweater Industry

Table 4: Summary for Woven Industry

Figure 9: Summary for Woven Industry

4.5 Estimating firm productivity

To formally study the overall productivity of firms, we need to

estimate firm production function, taking into account total factor
usage per unit of output. In the firm survey we asked firms to
provide the annual increase in the main product price and the
main material input price. The firm level price information allows
us to construct firm level price indexes of output and material,
which we use to deflate sales and material costs to obtain real
output and material level. We estimate the following production
function,

where i a
nd t are the indexes for
firm and year, respectively. In log, output, Y, is linearly related to
labor, L, materials, M, and capital stock, K. Any part of Y that are
not explained by the three factors of production are attributed to
productivity, A, which varies by firms and years. In other words, if
we regress lnY on lnL, lnM and lnK using ordinary least squares
(OLS) estimation, the regression errors are the firms productivity,
lnA.
However, firms input choices are likely to be endogenous.
How many workers to hire, how many unit of fabrics to purchase,
and how many new machines to set up each year depends on the
productivity of the firms, which is known to the firms, but not the
researchers or economists. Such input endogeneity will bias OLS
estimates of labor and materials upward. In addition, if larger and
older firms tend to stay in business despite low productivity, will
younger and smaller firms tend to quit easier, such entry/exit
decision of the firm will bias OLS estimates of capital downward.
To address input endogeneity bias and selectivity bias, we
follow a 3-step nonlinear estimation methodology developed by
Olley and Pakes (Econometrica, 1996). Moreover, to control for
any factors that are specific to the firms, such as fraudulent
accounting practice, or years, such as economic downturns, that
may bias our estimates that are beyond the Olley-Pakes
correction, we also include firm and year fixed effects in our
regressions. We modified the three stage nonlinear estimation of

the above production function due to Olley and Pakes to include

firm and year fixed effects. Furthermore, even that older firms
are more likely to stay in business despite temporary down turn in
business, we also control for firm age in the estimation.

To control for input endogeneity, we first regress lnY on lnL,

lnM, a full set of firm and year fixed effects and a 3rd order
polynomial function of real investment and capital, which is used
to control for the unobserved productivity.
The estimated
coefficients on labor and materials are consistent. Firms real
investment, I, is obtained by deflating nominal investment from
the firm survey by the GDP deflator of domestic fixed capital
formation of Bangladesh in the respective years. Capital is
constructed by summing real investment over the years using
perpetual inventory method with an annual depreciation rate,
of 10 percent:

with initial capital stock being constructed using average between

firms first year fixed asset, F, and the infinite sum series of
investment prior to the first year, assuming that the growth rate
of investment of 0 and depreciation rate of 10 percent.
To obtain consistent coefficient estimate of capital, we first
estimate the entry/exit decision of the firms using a Profit
regression on a 3rd order polynomial function of investment,
capital and age, controlling for year, region and industry fixed
effects. This regression yields the propensity for a firm to stay in
business. We then regress

, constructed using

the consistent estimates of

and
from the 1st step, on age,
rd
capital, and a 3 order polynomial function of propensity of

survival and

This last-stage nonlinear

regression gives us consistent estimated coefficient on capital,

.
Results of the regressions are reported in Table 5. Column
(1) of Table 5 shows the OLS estimation with no correction on
endogeneity, selectivity, firm or year fixed effects.
These
estimates are likely to be biased. Column (2) shows the within
estimates with firm and year fixed effects. While these estimates
are robust to factor such as location which is specific to a firm and
macro economic climates which is specific to a year, year to year
variation of productivity within firm will still bias our estimates.
Column (3) reports the first stage Olley-Pakes procedure, where a
3rd order polynomial function of investment, capital and age is
included, in addition to firm and year fixed effects, to control for
within firm year to year changes in the unobserved firm
productivity. This procedure corrects for input endogeneity, which
reduces the upward bias relative to the OLS estimates. The
consistent estimated coefficients for labor and materials are 0.25
and 0.72, respectively. Without correcting for selectivity, the
estimated coefficient on capital is too low.

Table 5: Dependent Variable log of firm output

Column (4) controls for selectivity bias by including a 3 rd order

polynomial function of the estimated survival probability and the
net fitted output. The resulting estimated coefficient for capital is
0.02. All these coefficients are statistically significant, and are in
line with the estimates in the literature. Finally, with the sum of
the estimated coefficients of labor, capital and material equals to
one, the production function in the garment sector is found be
constant returns to scale.
With these estimates, we constructed firm level productivity
according to the following equations:

Comparing firm productivity across all firms in all subindustries and locations yields some interesting insights in terms
of relative productivity of firms. When we compare different firms
across different sub-industries, on average, knitwear firms are the
most productive. An average knitwear firm has 10 percent higher
productivity than a woven firm, and 17 percent more productive
than a sweater firm. Figure 10 presents the distribution of the
estimated firm productivity by the three sub-industries. In terms
of locations, productivity of firms located in Dhaka-EPZ is the
highest, follow by firms in Dhaka, Chittagong-EPZ and Chittagong.
Figure 11 presents the distribution of firm productivity by location.

Figure 11: Distribution of firm productivity by location

Comparing firm productivity from year to year within firms also

sheds some interesting new lights. On average, garment firms
are 3 percent more productive in 2003 than in 1999. The
improvement in productivity is especially clear for the sample of
domestic firms -- on average, domestic firm productivity is 5.5
percent higher in 2003 than in 1999. Figure 12 presents the
movement of firm productivity over time in the different subindustries. It is clear that most of the improvements are driven by
firms in the Sweater and Woven industries. These results purely
reflect the growth in productivity within a given firm, and thus are
not contaminated by the composition of firms in different
industries. Such an increase in productivity within a firm suggests
that there are some exogenous factors pushing firms to be more
productive over time. We explore one such exogenous factors
which is the productivity spillover effects of FDI firms.

Figure 12:
industries

Productivity Growth of Domestic Firms by Sub-

4.6 Are FDI firms more productive?

We relate the firm level productivity, Ait, to the ownership of the

firms. As shown in Figure 13, on average, productivity of firms
with foreign equity are about 20 percent higher than purely
domestically owned firms.

Figure 13: Productivity of Firms with Different Ownerships

What could have explained the 20 percent productivity advantage
of FDI firms? Column (1) of Table (6) regress the estimated ln TFP
of firms on a FDI indicator variable, controlling for industry, year
and location fixed effects. This is to isolate the effect of foreign
ownership from the influences of sub-industries, investment
climate of the locations, and the macro economic shock in each
year. Given that ownership seldom change within firms in our
sample, between-firms variation in foreign ownership is used to
identify the effect of FDI dummy on productivity. The result shows
that a FDI firm is still about 20% more productive than a domestic
firm in the same industry, location and year. This shows that the
effect of foreign equity on firm productivity is independent on the
location of the firms, the sub-industry of the firms and the

macroeconomic fluctuations. Columns (2) and (3) further include

age and export destinations of the firms in both the between and
the OLS regressions. It is clear that FDI firms do have a higher
level of productivity, even after we take into account the export
destinations and thus the potential demand shocks of the firms,
as well as the experience of the firms as proxies by age.
Moreover, the OLS results show that firms export to US tend to be
more productive, which concurs our previous finding using firm
export data from EPB.
Columns (4) to (6) repeat the exercise by using the actual
foreign equity share in the regressions instead of a FDI dummy
variable. The results are strikingly similar. This could be because
most of the FDI firms in Bangladesh garment sector have 100
percent foreign equity, only 7 FDI firms are jointly venture firms
with foreign equity no less than 25 percent.
Thus overall there is convincing and statistical significant
evidence suggesting that FDI firms are more productive than
otherwise identical domestic firms operating in Bangladesh. This
result is robust after taking into account the effects of locations,
sub-industries, macro fluctuation, export destinations and
experience.

Table 6: Dependent Variable log of TFP

4.7 Productivity Spillover: Can Domestic

Firms Benefit from FDI Firms?
Many countries provide special incentives such as tax holidays or
subsidies, and import duty exemptions to attract FDI, with the
assumptions that the presence of FDI will benefit domestic
economy through the some unmeasured spillover effects. To
date, there is evidence of vertical spillover effects through the
contact of domestic upstream suppliers to the downstream FDI
firms (Javorcik, AER, 2004), evidence of horizontal spillover
effects however have been quite elusive.
To study whether such effects exists in Bangladeshs
garment sector, we first relate the estimated TFP of the domestic
firms to the presence of FDI firms in the sub-industries. Presence

of FDI firms in sub-industry j, FPjt, is captured by the share of

employment of FDI firms collectively in the sub-industries in a
given year, adjusted by the percentage of foreign ownership of
FDI firms, FSit, for all firm i in sub-industry j. This measure of the
influence of FDI firms has been used in the literature (Aitken and
Harrison, AER, 1999).

In addition, we further relate the estimated TFP of domestic

firms to the TFP of FDI firms in the same sub-industry and year. In
order to capture the economic influence of the productivity of FDI
firms, we weight the TFP of FDI firms with the share of foreign
equity and the share of employment in the industry. Weighting by
capital or output would not change the results.

Given that both the presence of FDI in the industry and the
productivity of FDI firms in the industry do not vary within each
firm observation, and are specific to each industry-year, we have
aggregate variables in micro unit, which will artificially deflate the
standard errors of the firm level panel regression (Moulton,
RESTAT, 1990). We correct for such problem non parametrically
by clustering the standard errors of the regressions by industryyear.
Table 7 presents the regression results. Column (1) shows that
controlling for firm and year fixed effects, productivity of domestic
firms increases with the presence of FDI firms in the sub-industry.
However, while the effect is positive, it is not statistically
significant. This is quite in line with the finding of the previous

literature, and is robust to the inclusion of other control variables

such as age and export destinations in Column (2). The more
interesting result is presented in Columns (3) where we find
positive and significant effects of the productivity spillover of FDI
firms on the domestic firms in the same sub-industry. For every
10 percent increase in the productivity of FDI firms, the
productivity level of domestic firms in the same sub-industry
improves by 1.4 percent. This result is robust to controlling for
export shares and age of the firms as shown in Column (4).
Columns (5) to (8) repeat the same exercise, but instead of using
log of TFP as dependent variable, we use the level of TFP. This is
closer to the usual notion of productivity (Olley and Pakes,
Econometrica, 1996). In these specifications, both the presence
of FDI firms and the productivity of FDI firms have positive and
statistically significant effects on the productivity of domestic
firms in the same sub-industry.
Overall, there are sufficient statistically evidence suggesting that
domestic firms may benefit from the productivity growth of FDI
firms in their sub-industries. Thus, not only are FDI firms more
productive than domestic firms, productivity growth of FDI firms
may spillover to the domestic economy to benefit the domestic
firms.

Table 7: Foreign Productivity Spillover

5.0 Findings of the study

Bangladesh is a winning combination with its competitive market,
business friendly environment and cost structure for FDI, some of
the opportunities are as follows:
Bangladesh offers a well-educated, highly adaptive and
industrious workforce with the lowest wages and salaries in
the region. 57.3% of the population is under 25, providing a
youthful group for recruitment. The country has consistently
developed a skilled workforce catering to investors needs
throug making FDI flexible in this country.
FDI helps in formating capital ,being technology. create
empolyment for people,increasing money supply actually
contribute to increase productivity.
Bangladesh has proved to be an attractive investment
location with its 146.6 million populations and consistent
economic growth leading to strong and growing domestic
demand to the foreign country.

Bangladesh offers the most liberal FDI regime in South Asia,

allowing 100% foreign equity with unrestricted exit policy,
easy remittance of royalty, and repatriation of profits and
incomes.
due to FDI
garment 's productivity is increasing day by
day,and there is a high growth in sector.

Export

of Bangladesh increased to 182.62 Bangladesh

taka billion in may of 2014 from 179.63 Bangladesh taka

billion in april014.it
investment.

has

been possible due to

foreign

the FDI firm is 20% more productive then domestic firms

6.0
Conclusion
Recommendations

and

6.1 Conclusions:
Bangladesh has a number of positive attributes that can
successfully attract the attention of foreign investors from both
developed and developing countries. The increasing availability of
skilled and unskilled labor at relatively low wages and the success
in maintaining reasonably stable macroeconomic environment are
a few factors behind making the country an attractive destination
for foreign investors. They are generally aware that the wage
rates in Bangladesh are among the lowest in Asian countries, the
rate of inflation is usually contained within tolerable limits, the
exchange rate is reasonably stable, custom regulations are
investment friendly without discrimination between foreign and
domestic investors, and attractive incentive packages are
available for the foreign investors. Bangladesh needs to
undertake effective promotion measures to convince the potential
foreign investors that their involvement in business activities in
the country is valued, they would be facing friendly regulations,
and they can enjoy investment incentives that are competitive
with those offered by other countries in the region and the
developing world. The country also needs to move forward
through implementing investment friendly policies, simplifying
regulatory practices, and removing inefficient bureaucratic
procedures. Based on the foregoing discussion and analysis, it
may be stated that as Bangladesh has not yet been successful in
creating a favorable environment for attracting sufficient amount
of FDI, it is likely that dialing the flows of FDI will remain at the
bottom level. The country is lagging behind most of the other
regional developing nations in attracting FDI. Therefore, all

barriers that stand in the way of industrialization and attracting

FDI are required to be overcome. The infrastructure is number one
determining factor in attracting FDI. Poor infrastructure and highly
priced utilities in Bangladesh shy away foreign investors from
their investment. In every sector of infrastructure, the availability
of quality and reliable services are vital factors in attracting FDI.
This paper studies the relationship between foreign equity and
firm productivity of Bangladesh
industrial sector.
Firm
productivity is measured by the total factor productivity (TFP),
which is the level of output that is not explained by inputs,
reflects efficiency in production of the firms. Using between firm
variations, we show that FDI firms on average are 20 percent
more productive than domestic firms in the same sub-industry
and location.
Furthermore, there is statistically significant
evidence suggesting that domestic firms may benefit from the
productivity spillover from the FDI firms. For every 10 percent
increase in FDI firm productivity, the productivity of domestic
firms improve by 1.4 percent. The findings of this paper support a
more open FDI policy in Bangladesh industrial sector.

6.2 Recommendations
After the above study and practical knowledge on the impact of
FDI on industrial productivity in Bangladesh, some focal points are
discussed below to improve the FDI opportunities in Bangladesh.
The following suggestion is based on the assumption, idea and
knowledge about the FDI in Bangladesh but there is no empirical
proof.
Sustainable Economic Development: Sustaining macroeconomic
stability through maintenance of appropriate monetary and fiscal
policy, increasing the Investment, increasing revenue, improving
export performance, sustaining remittance growth, providing
productive employment to the labor force and improving business
and investment climate. The Central Bank should pursue such
monetary policy as would reduce inflation and promote higher

growth through maintaining an adequate flow of credit to

productive activities. it will ultimate attract the foreign investor.
Image Building: Improving the currently bad image of doing
business in Bangladesh and improving the ranking Bangladesh
can attract the foreign investors for FDI. Only branding the
country can attract for FDI because at first the foreign investors
think about the name and fame of the country to where they want
to invest. This requires an increase in political stability;
macroeconomic stability; and the protection of property rights as
well as the rule of law, easing the getting credit, paying tax and
trading across border policy should be easy.
Marketing Investment Opportunities: Creating awareness of
investment opportunities through the use of existing investors
and information communication technologies such as the internet.
Existing investors play an important role in attracting new
investors to new investment locations so the policy makers should
provide the investment opportunities to both existing and
potential investors.
Trade Liberalization: Openness to trade will signal commitment to
outward-looking, market-oriented policies and enhance trading
opportunities thereby attracting foreign investors intent on taking
advantage of the new trading opportunities. The government
should liberalize the FDI policies and try to give some tax
reduction and incentives. Privatization: The privatization of
inefficient state-owned enterprises will boost foreign investment.
The privatization of public corporations is necessary to re- duce
government fiscal deficits.
Infrastructure and Communication Development: Initiating and
encouraging
more
cooperation
in
infrastructure
and
communication
development
projects
for
example,
in
telecommunication, transportation, power generation, and the
provision of water ca attract the foreign investors to invest in
Bangladesh. This will increase access to and reduce the cost of
provision of these facilities, thereby lowering transactions costs,

boosting trade, and increasing the attraction of the region to

foreign investors.
Human Resource Development: For human resource development
through knowledge base education, training and research,
attention had to be given to increase peoples access to
information, research and capacity development so that the
foreign investor get it more feasile to invest in Banglades.

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