Financial liberalization, financial development and economic growth: An analysis of the financial sector of Bangladesh

Abstract

This chapter reviews the process of financial liberalization that has taken place over time and assesses its impact on the financial sector development and economic growth. Financial liberalization in the 1990s improves all the indicators of financial development, and as a result the financial system of Bangladesh has widened and deepened. The average credit, deposit and broad money to GDP ratios increased substantially from 6.6 percent, 14.9 percent and 19.0 percent, respectively, during 1976-1980 to 38.05 percent, 41.84 percent and 50.8 percent in 2012. Investment and per capita income also display a similar increasing pattern reflecting a close association with financial development. However, analysis casts doubt on the positive role of financial liberalization on the efficiency and competitiveness of the financial sector.