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Financial Development and Poverty Reduction Nexus:A Cointegration and Causality Analysis in Bangladesh

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  • Uddin, Gazi Salah
  • Shahbaz, Muhammad
  • AROURI, Mohamed El Hedi

Abstract

This study investigates the relationship between financial development, economic growth and poverty reduction in Bangladesh using quarter frequency data over the period of 1975-2011. This issue is of importance for developing economics, since the role of financial sector in mobilizing and allocating savings into productive investments. All variables are tested for their order of integration using the ADF and Zivot-Andrews structural break tests. The results show that the variables are integrated at I(1). We then apply a simulation based the ARDL approach to cointegration by incorporating structural breaks stemming in the series for long run relation. Our empirical findings indicated that long run relationship between financial development, economic growth and poverty reduction exists in Bangladesh. The diagnostic tests show that the underlying assumptions of the statistical model are fulfilled. The implication of the empirical findings is explained in the main text.

Suggested Citation

  • Uddin, Gazi Salah & Shahbaz, Muhammad & AROURI, Mohamed El Hedi, 2013. "Financial Development and Poverty Reduction Nexus:A Cointegration and Causality Analysis in Bangladesh," MPRA Paper 49264, University Library of Munich, Germany, revised 23 Aug 2013.
  • Handle: RePEc:pra:mprapa:49264
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    Cited by:

    1. Seven, Unal & Kilinc, Dilara & Coskun, Yener, 2017. "Does Credit Composition Have Asymmetric Effects on Income Inequality?," MPRA Paper 82104, University Library of Munich, Germany.
    2. Alessandra Cepparulo & Juan Carlos Cuestas & Maurizio Intartaglia, 2017. "Financial development, institutions, and poverty alleviation: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 49(36), pages 3611-3622, August.
    3. Renata Karkowska, 2015. "Global Liquidity Determinants Across Emerging and Advanced Countries," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(3), pages 152-170, May.
    4. repec:khe:scajes:v:3:y:2017:i:2:p:28-35 is not listed on IDEAS
    5. repec:ipg:wpaper:2014-557 is not listed on IDEAS
    6. Ho, Sin-Yu & Njindan Iyke, Bernard, 2017. "Does Financial Development Lead to Poverty Reduction in China? Time Series Evidence," MPRA Paper 78922, University Library of Munich, Germany.
    7. Seven, Unal & Coskun, Yener, 2016. "Does financial development reduce income inequality and poverty? Evidence from emerging countries," Emerging Markets Review, Elsevier, vol. 26(C), pages 34-63.
    8. Raihan, Selim & Osmani, S.R. & Khalily, M.A. Baqui, 2017. "The macro impact of microfinance in Bangladesh: A CGE analysis," Economic Modelling, Elsevier, vol. 62(C), pages 1-15.
    9. repec:jfr:ijfr11:v:8:y:2017:i:4:p:90-98 is not listed on IDEAS
    10. Ho, Sin-Yu & Njindan Iyke, Bernard, 2018. "Financial Development, Growth and Poverty Reduction: Evidence from Ghana," MPRA Paper 87121, University Library of Munich, Germany.
    11. repec:eee:quaeco:v:66:y:2017:i:c:p:136-148 is not listed on IDEAS
    12. Pam Zahonogo, 2017. "Financial Development and Poverty in Developing Countries: Evidence from Sub-Saharan Africa," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(1), pages 211-220, January.
    13. 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.
    14. repec:kap:ecopln:v:51:y:2018:i:3:d:10.1007_s10644-017-9203-8 is not listed on IDEAS
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    16. Yaya Keho, 2016. "Revisiting the Financial Development and Poverty Reduction Nexus for Sub-Saharan African Countries: Evidence from Causality Tests in the Time and Frequency Domains," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1906-1910.
    17. Boukhatem, Jamel, 2016. "Assessing the direct effect of financial development on poverty reduction in a panel of low- and middle-income countries," Research in International Business and Finance, Elsevier, vol. 37(C), pages 214-230.
    18. Taofeek Olusola Ayinde & Olumuyiwa Ganiyu Yinusa, 2016. "Financial Development and Inclusive Growth in Nigeria: A Threshold Analysis," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 12(4), pages 326-346, October.
    19. Ziaurrahman, Muhammad & Masih, Mansur, 2016. "Is financial sector development an engine of economic growth? evidence from India," MPRA Paper 72121, University Library of Munich, Germany.
    20. repec:ipg:wpaper:2014-558 is not listed on IDEAS
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    23. Sinan Esen & Korhan Gokmenoglu, 2016. "Financial Centres Index and GDP Growth," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(4), pages 198-206, April.

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    Keywords

    Financial development; economic growth; poverty;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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