How to Finance Investment in Bangladesh: Finding Long-run Factors in a Bounds Test Method.

Investment in Bangladesh has been at almost one-fourth of the country’s output since the early 2000s. Consequently, Bangladesh’s growth has also remained stagnant at around 6 percent since then. The question of how to increase investment in Bangladesh has been of crucial discussion of late. This study examines the long run determinants of investment in Bangladesh by applying the bounds test over 1976-2010. There should not be any policy dilemma about the effect of lending rates, which must be reduced to boost investment and domestic credit should be expanded. Further liberalization in trade and finance is recommended since economic openness and financial deepening show a positive impact on capital formation. The policy prescriptions for Bangladesh are not different from those for other nations that embarked on liberalization to augment investment for accelerating growth.