Finance-Growth Nexus in Bangladesh? An Empirical Analysis

Abstract

We examine the empirical relationship between financial and economic growth in Bangladesh over the period of 1985-2014. Augmented Dickey Fuller (ADF) test is performed for checking the stationarity properties and it is revealed that all the concerned variables are stationary. Johansen cointegration method indicates that long-run cointegrating relationship prevails in some of the concerned variables. Then applying the Granger causality test, we have revealed casual relationship between economic growth and few indicators of financial development. The weak financial structure composed of non performing banking sector, underdeveloped capital market, bond market and an insurance market could well be the reasons behind it. The findings of our paper recommend policymakers to further develop the financial structure of the country which would ensure future economic growth.