Tax Revenue and Foreign Direct Investment in Bangladesh: An Empirical Analysis

As per the common narrative, Foreign Direct Investment (FDI) is a
crucial source of capital investment. Most of the developing countries
try to attract FDI for improving their domestic investment scenario.
However, FDI inflow may be hampered due to high tax revenue in
developing countries. To the best of our knowledge, no studies have
been conducted to investigate the underlying relationship between
FDI and tax revenue in Bangladesh. Thus, the core objective of this
paper is to analyze the impact of tax revenue on FDI with the help of
time series data ranging from 2001-2015. According to Johansen’s
cointegration test result, concerned variables are cointegrated in the
long run. By employing the Granger causality test, we have found
that there is a unidirectional causality running from tax revenue to
FDI in the long run. For long run estimation, we have used Dynamic
Ordinary Least Square (DOLS) approach. According to the
estimation result, the coefficient of tax revenue is negative indicating
an inverse relation with FDI. These results may help policymakers to
come up with proper policies to boost the economy of Bangladesh.

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