Abstract:
The key purpose of the study is to investigate the relationship between Greenfield investment and
economic growth of Bangladesh using annual time series data during the period 2003–2020. The
study employs Toda-Yamamoto (T-Y) tests of Granger causality method that performs Modified
Wald Test (MWALD) in order to establish causal relation among different variables. There are
three steps in implementing the T-Y procedure. The first step involves using different tests (ADF,
PP, and KPSS test) to identify the maximum order of integration of the variable. The second step
requires selecting the optimal lag length (p) based on several lag length selection criteria. In the
third step, MWALD approach is used for testing the vector auto regression model for causality.
The results of the tests (ADF, PP, and KPSS) concluded that the maximum order of integration of
the variables is two. Then, the optimal lag length of two (p = 2) has been selected based on
several lag length selection criteria. Finally, the findings reveal the evidence of unidirectional
causality from Real Greenfield Foreign Direct Investment (RGFDI) to Real Gross Domestic Product
(RGDP). The key contribution of this study is to investigate the Greenfield investments-growth
relationship for a country like Bangladesh.
