TESTING BHAGWATI HYPOTHESIS : DOES ICT CONTRIBUTE TO ECONOMY?

Abstract

Nowadays the effects of global commerce and technological spillover has gained power in
developing countries. Empirical data demonstrates that although some nations benefit from
international commerce and technical innovation to compete in the global market, others suffer.
Bhagwati Hypothesis postulates that Foreign Direct Investment positively related to economic
growth. To test empirically the Bhagwati postulates, this study considers time series data-set
1972 to 2018 along with modern era driver, ICT, of economy. Autoregressive Distributive Lag
model results signify a direct linkage between employment, investment, ICT, and economic
growth, respectively. Capital accumulation and high employment rate indicate better economic
performance, whereas increment in foreign direct investment has an inverse effect on growth.
The estimated empirical results are contradictory to the "Bhagwati Hypothesis". Underdeveloped
infrastructure, worse law & order situation due to war on terror and inconsistency in Government
policies regarding FDI may explain this negative FDI growth effect. This study suggests
investing in economic activities, human capital enhancement, ICT infrastructure and FDIfriendly policies to boost economic growth, create job opportunities, and create a competitive
business environment, thereby attracting global investors.
Keywords: Bhagwati hypothesis; employment; FDI; ICT; economic growth