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Economics Research International
Volume 2012 (2012), Article ID 463856, 10 pages
Research Article

Impact of Foreign Direct Investment, Trade Openness, Domestic Demand, and Exchange Rate on the Export Performance of Bangladesh: A VEC Approach

College of International Management, Ritsumeikan Asia Pacific University, 1-1 Jumonjibaru, Bepp-hi, Oita-ken, Japan

Received 29 March 2012; Revised 16 September 2012; Accepted 16 September 2012

Academic Editor: James E. Payne

Copyright © 2012 Bishnu Kumar Adhikary. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


This paper investigates the impact of foreign direct investment (FDI), trade openness, domestic demand, and exchange rate on the export performance of Bangladesh over the period of 1980–2009 using the vector error correction (VEC) model under the time series framework. The stationarity of the variables is checked both at the intercept and intercept plus trend regression forms under the ADF and PP stationarity tests. The Johansen-Juselius procedure is applied to test the cointegration relationship between variables followed by the VEC regression model. The empirical results trace a long-run equilibrium relationship in the variables. FDI is found to be an important factor in explaining the changes in exports both in the short run and long-run. However, the study does not trace any significant causal relationship for the cases of trade openness, domestic demand, and exchange rate. The study concludes that Bangladesh should formulate FDI-led polices to enhance its exports.