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

Muhammad Shahbaz, Ijaz ur Rehman and Ahmed Taneem Muzaffar

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Financial development; trade openness; Bangladesh (search for similar items in EconPapers)
JEL-codes: C1 (search for similar items in EconPapers)
Date: 2014-07-15, Revised 2014-07-22
New Economics Papers: this item is included in nep-gro
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Re-Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh (2015)
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