Financial Development-Economic Growth Nexus: A Case Study of Bangladesh

Habibur Rahman
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Habibur Rahman: Senior Research Economist at Policy Analysis Unit (PAU) of Bangladesh Bank

Bangladesh Development Studies, 2004, vol. 30, issue 3-4, 113-128

Abstract: The existence of correlation between financial development and economic growth is well established by the theoretical as well as empirical evidence. The presence of correlation between financial development and economic growth is initially articulated by Gurley-Shaw (1955) followed by Goldsmith (1969), McKinnon (1973) and Shaw (1973). Gurley-Shaw (1955) provided convincing evidence of co-evolution of the real and the financial sectors without attributing any specific direction of causation which is again confirmed by Bencivenga-Smith (1998). Goldsmith (1969) also finds evidence of strong correlation between financial development and economic growth in his cross-country study. McKinnon (1973) and Shaw (1973) advocate financial liberalisation based on the belief that it will increase savings as well as real credit supply which will in turn induce a higher volume of investment and faster economic growth (Dixon 1997, p.752). Evidence of strong correlation between financial development and economic growth in these studies convincingly established a hypothesis that a well-developed and better functioning financial system supports faster economic growth

Keywords: Finance; Development-Economic Growth Nexus; Case Study; Bangladesh (search for similar items in EconPapers)
JEL-codes: A10 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (19)

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