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The Casual Nexus of Banking Sector Development and Poverty Reduction in Bangladesh

Author

Listed:
  • Gazi Salah Uddin

    (Department of Economics, CarletonUniversity,1125 Colonel By Drive, Ottawa, Ontario, Canada.)

  • Phouphet Kyophilavong

    (Faculty of Economics and Business Management,National University of Laos,)

  • Nasim Sydee

    (Policy Analyst, Labour Program,Human Resources and Skills Development Canada,)

Abstract

The paper aims to investigate the inter-temporal causal relationship between banking sector development and poverty reduction in Bangladesh from 1976 to 2010. We have applied new methods using modern time series econometrics techniques based on simulations that are robust to the violation of statistical assumptions, especially when the sample size is small, as is the case in this paper. The results reveal that there is a long-term equilibrium relationship between banking sector development and poverty reduction in the case of Bangladesh. Surprisingly, poverty reduction appears to be a long-term forcing variable to the explanation of Bangladesh’s banking sector development. There is bidirectional causality between these variables. The diagnostic tests show that the underlying desirable assumptions are fulfilled. Time series data on poverty in many developing countries, particularly in Bangladesh, is scant and inadequate. The empirical results of this study will help policy makers determine whether poverty reduction in Bangladesh is a spur to financial sector development. This implies that, in the long term, Bangladeshi policy makers can influence the reduction of poverty through financial sector development. Although several attempts have been made to investigate the relationship between financial development and growth, this paper is the first of its kind to empirically examine the causal relationship between poverty and the development of the banking sector in Bangladesh.

Suggested Citation

  • Gazi Salah Uddin & Phouphet Kyophilavong & Nasim Sydee, 2012. "The Casual Nexus of Banking Sector Development and Poverty Reduction in Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 304-311.
  • Handle: RePEc:eco:journ1:2012-03-8
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    References listed on IDEAS

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    Cited by:

    1. repec:jfr:ijfr11:v:8:y:2017:i:4:p:90-98 is not listed on IDEAS
    2. Salah Abosedra & Muhammad Shahbaz & Kishwar Nawaz, 2016. "Modeling Causality Between Financial Deepening and Poverty Reduction in Egypt," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 126(3), pages 955-969, April.
    3. Uddin, Gazi Salah & Shahbaz, Muhammad & Arouri, Mohamed & Teulon, Frédéric, 2014. "Financial development and poverty reduction nexus: A cointegration and causality analysis in Bangladesh," Economic Modelling, Elsevier, vol. 36(C), pages 405-412.
    4. Abdelhafidh Dhrifi, 2013. "Financial Development and Poverty: What Role for Growth and Inequality?," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(4), pages 119-129, October.
    5. repec:spr:fininn:v:3:y:2017:i:1:d:10.1186_s40854-017-0070-0 is not listed on IDEAS
    6. Muhammad Ali Nasir & Junjie Wu & Milton Yago & Haohong Li, 2015. "Influence of Psychographics and Risk Perception on Internet Banking Adoption: Current State of Affairs in Britain," International Journal of Economics and Financial Issues, Econjournals, vol. 5(2), pages 461-468.
    7. Ijaz Rehman & Muhammad Shahbaz, 2014. "Multivariate-based Granger causality between financial deepening and poverty: the case of Pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(6), pages 3221-3241, November.
    8. A. Nurul Hossain & Syed Hasanuzzaman, 2013. "Remittances and investment nexus in Bangladesh: an ARDL bounds testing approach," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 60(4), pages 387-407, December.
    9. Abdelhafidh Dhrifi, 2015. "Financial Development and the "Growth-Inequality-Poverty" Triangle," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 6(4), pages 1163-1176, December.

    More about this item

    Keywords

    Poverty; Banking Sector Development; Cointegration; Error Correction; ARDL Bounds Testing; Bangladesh;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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