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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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