Does external dependency impact economic growth? Evidence from an emerging economy

In this era of globalization, attention has been paid to the ways of providing external finance to support the growth path of developing countries. Hence, this study aims to measure the external dependency of economic growth via an assessment of the role of the various external factors, contributing to Bangladesh’s economic growth. To this end, an Auto-Regressive Distributed Lag (ARDL) approach was employed to analyze time series data from 1976 to 2021. The study revealed that external determinants like foreign remittances, foreign direct investment (FDI), exports, and foreign aid drive the economic growth of Bangladesh progressively. In contrast, external debt and imports adversely affect the growth of the Bangladeshi economy. The study recommends that policymakers undertake the necessary steps to provide adequate socioeconomic infrastructure, a sound environment for international trade, and overall, a sound macroeconomic condition. These initiatives help to increase the inflow of foreign direct investments, foreign remittances, and export earnings, thereby decreasing the dependency on external debts in the financing of deficit budgets.