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Testing financial liberalization hypothesis with ARDL modelling approach

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  • Min Shrestha
  • Khorshed Chowdhury

Abstract

It is a stylised fact that financial 'repression' retards economic growth. Hence, financial liberalization is advocated to remove the stranglehold on the economy. Financial liberalization policy argues that deregulation of interest rate would result in a higher real interest rate which would lead to increased savings, increased investment and achieve efficiency in financial resource allocation. Past studies have reported inconclusive results regarding the interest rate effects on savings and investment. This examines the financial liberalization hypothesis by employing autoregressive distributed lag (ARDL) modelling approach on Nepalese data. Results show that the real interest rate affects both savings and investment positively.

Suggested Citation

  • Min Shrestha & Khorshed Chowdhury, 2007. "Testing financial liberalization hypothesis with ARDL modelling approach," Applied Financial Economics, Taylor & Francis Journals, vol. 17(18), pages 1529-1540.
  • Handle: RePEc:taf:apfiec:v:17:y:2007:i:18:p:1529-1540
    DOI: 10.1080/09603100601007123
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    References listed on IDEAS

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    Cited by:

    1. Shahbaz, Muhammad & Lean, Hooi Hooi, 2012. "Does financial development increase energy consumption? The role of industrialization and urbanization in Tunisia," Energy Policy, Elsevier, vol. 40(C), pages 473-479.
    2. Muhammad Tahir, 2008. "An Investigation of the Effectiveness of Financial Development in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 13(2), pages 27-44, Jul-Dec.
    3. Makuyana, Garikai & Odhiambo, Nicholas Mbaya, 2017. "Public and private investment and economic growth in Malawi:An ARDL-bounds testing approach," Working Papers 22003, University of South Africa, Department of Economics.
    4. Makuyana, Garikai & Odhiambo, Nicholas Mbaya, 2017. "Public and private investment and economic growth in South Africa:An empirical investigation," Working Papers 22005, University of South Africa, Department of Economics.
    5. Muhammad, Shahbaz & Lean, Hooi Hooi, 2011. "Does Financial Development Increase Energy Consumption? Role of Industrialization and Urbanization in Tunisia," MPRA Paper 33194, University Library of Munich, Germany, revised 06 Sep 2011.
    6. Islam, Faridul & Shahbaz, Muhammad & Ahmed, Ashraf U. & Alam, Md. Mahmudul, 2013. "Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis," Economic Modelling, Elsevier, vol. 30(C), pages 435-441.
    7. Qazi Hye & Wee-Yeap Lau & Marie-Aimée Tourres, 2014. "Does economic liberalization promote economic growth in Pakistan? An empirical analysis," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(4), pages 2097-2119, July.
    8. Bishnu Prasad Gautam Ph. D., 2015. "Role of Financial Development in Economic Growth of Nepal: An Empirical Analysis," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 27(1), pages 1-16, April.
    9. Moyo, Clement & Le Roux, Pierre, 2018. "Interest rate reforms and economic growth: the savings and investment channel," MPRA Paper 85297, University Library of Munich, Germany.
    10. Makuyana, Garikai & Odhiambo, Nicholas Mbaya, 2016. "Public and private investment and economic growth in Zambia: A dynamic approach," Working Papers 21377, University of South Africa, Department of Economics.

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