Bangladesh, a labour-abundant country, benefits from foreign direct investment (FDI), as it is considered to be a supplement to domestic investment for this capital-scarce economy. This paper measures the impacts of an FDI increase in the RMG sector on the macroeconomy in Bangladesh and on the welfare of households, which are heterogeneous, especially in income sources, using a general equilibrium framework. Simulation results show that an increase in FDI promotes both output and exports in the RMG sector. However, because of the competition between MNEs and domestic firms, the output of domestic firms would fall slightly. Scrutinizing the welfare effects among household groups, we find that the benefits of FDI-induced growth would affect all household groups unevenly. We also demonstrate that the benefits could be shared equitably among household groups with skill development programmes targeted at the adversely affected household groups.

DOI: https://doi.org/10.57138/MCXJ3052

Date of Publication

August 2021

Keywords

Bangladesh, Readymade Garment, Foreign Direct Investment, Computable General Equilibrium Analysis, Distributional Impact

JEL Classification Code

C68, F21, F23, O1

Recommended Citation

Hossain, M. S., & Hosoe, N. (2021). Foreign direct investment in the readymade garment sector of Bangladesh: Macro and distributional implications. The Bangladesh Development Studies, 43(1&2), 1-34. https://doi.org/10.57138/MCXJ3052