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Re-Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh

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  • Shahbaz, Muhammad
  • Rehman, Ijaz ur
  • Ahmed Taneem, Muzaffar

Abstract

This paper revisits the relationship between financial development and economic growth in Bangladesh by incorporating trade openness in production function using quarter frequency data over the period of 1976-2012. We applied combined Bayer-Hanck cointegration to examine cointegration amongst variables in the presence of structural breaks. The results show that financial development facilitates economic growth but capitalization impedes it. In addition, trade openness stimulates economic growth. Labour is also positively linked with economic growth. The causality analysis reveals the feedback effect between financial development and economic growth. Trade and labour Granger cause economic growth. This paper provides new insights for policy making authorities to use financial development and trade openness as tool to sustain economic growth in long run. This paper also suggests policy makers to utilise capitalization in proper way to sustain economic growth for long run.

Suggested Citation

  • Shahbaz, Muhammad & Rehman, Ijaz ur & Ahmed Taneem, Muzaffar, 2014. "Re-Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh," MPRA Paper 57500, University Library of Munich, Germany, revised 22 Jul 2014.
  • Handle: RePEc:pra:mprapa:57500
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    Financial development; trade openness; Bangladesh;
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    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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