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Finance-Growth Nexus in Bangladesh: Is it Important to Quantify Financial Development?

Authors :
Md. Monzur Hossain
Mohammad Kamal Hossain
Uttam Golder
Mohammad Awal Hossen
Fatema Sultana
Source :
Universal Journal of Accounting and Finance. 9:961-971
Publication Year :
2021
Publisher :
Horizon Research Publishing Co., Ltd., 2021.

Abstract

This study aims to examine empirically whether financial development can promote economic growth in Bangladesh. It employs the Autoregressive Distributed Lag (ARDL) model and takes annual data from 1987 to 2019. This study confirms a cointegrating relationship between financial development and economic growth. The nature of this relationship is unidirectional, running from financial development to economic growth. The outcome of the study confirms that financial development, as proxied by private sector loans and broad money supply, augments economic growth in the long-run. As for the control variables, gross domestic savings show an insignificant impact on economic growth when private sector loans are proxied for financial development. However, it confirms a substantial impact on economic growth when broad money supply is proxied for financial development. More interestingly, trade openness, another control variable, suggests an adverse impact on economic growth in the long-run. However, it has a substantial positive influence on economic growth in the short-run. In the short-run, broad money supply at lag 2 and gross domestic savings significantly affect economic growth when broad money supply is proxied for financial development. The findings of this study advocate that a robust and dynamic financial structure in Bangladesh is a critical success factor for developing the country's economic growth.

Details

ISSN :
23319720 and 23319712
Volume :
9
Database :
OpenAIRE
Journal :
Universal Journal of Accounting and Finance
Accession number :
edsair.doi...........2f3213c2cfe240fad3f1fc7c94d4f9b9
Full Text :
https://doi.org/10.13189/ujaf.2021.090507