Determinants of the long-run growth rate of Bangladesh

Abstract

This article estimates Total Factor Productivity (TFP) for Bangladesh and analyses its key determinants. According to the Solow (1956) growth model, long-run growth rate equals TFP. Estimated β-coefficients show that trade openness, foreign direct investment and development of financial sector increase TFP.

Notes

¹ Details of the unit root and bounds test results are not reported to conserve space and may be obtained from us. Definitions of the variables and data sources can also be obtained from us. Due to the limited space these are not included.

² This is a suggested option, which we think is a pragmatic option. However, we think that to increase TFP to a higher level some difficult and large changes in policy measures are necessary.

³ Akaike's Information Criteria (AIC) indicated a higher order for VAR but this is not a pragmatic option. Our procedure for the optimal lag is perhaps better than the arbitrary selection of one or two periods in many works citing data limitations as the reason.

⁴ First, we delete a variable with the smallest t-ratio and below the 5% critical value. The equation is reestimated and another insignificant variable is removed. This procedure is continued until all the retained coefficients are significant.