Author: Serajul Hoque
This paper uses a large-scale computable general equilibrium model of Bangladesh to simulate the economic effects of attracting foreign investment by improved business confidence. The simulation results indicate that if all revenue of newly arrived capital accrues to foreign investors and the government maintains budget neutrality, in the long-run this would expand GDP slightly. In general, capital-intensive sectors experience robust expansion and labour-intensive sectors suffer a contraction in output and employment. Urban households experience increases in consumption because they are relatively heavily concentrated in manufacturing sectors that are favourably affected. In contrast, rural households experience decreases in consumption because they are relatively concentrated in the agriculture sector which is adversely affected.
JEL classification: C68, E22, F21.
Keywords: Business confidence; foreign direct investment; computable general equilibrium model; Bangladesh..
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