Evaluating the impact of foreign aid on economic growth in Bangladesh: insights from a dynamic ARDL model analysis

The role of foreign aid in economic development has long been a debated topic among scholars of developing economies. This study re-examines the relationship in Bangladesh from 1993 to 2022, employing dynamic ARDL simulations and Kernel Regularized Least Squares analysis. The findings reveal that official development assistance has minimal direct influence on economic progress, with economic growth primarily driven by capital accumulation and foreign direct investment (FDI). Impulse Response Function analysis confirms the negligible impact of aid shocks on output. Based on these results, the study recommends a strategic shift in policy away from reliance on aid and toward strengthening domestic capital formation and creating a more favorable investment climate for FDI. Additionally, improving institutional quality and implementing targeted reforms can enhance resource absorption and long-term economic growth. These insights offer valuable contributions to policy debates within aid-dependent economies.