Financial Sector Development and Economic Growth in Bangladesh: A Factor Analysis Based Causality Approach

Altaf Hossain, Suman Biswas, Md. Nasif Hossain and Arnab Kumar Poddar

International Journal of Economics and Finance, 2017, vol. 9, issue 8, 229-238

Abstract: To understand the finance-growth nexus, this paper is intended to find a fewer number of important financial factors using Factor Analysis on some selected indicators of Bangladesh financial sector during the period 1988-2013. This paper then tries to check whether the identified financial factors cause economic growth or economic growth causes financial factors using the Granger ¨C Causality test. Factor Analysis shows that financial indicators under the dimensions, depth and stability form Factor 1, and the indicators under the dimensions, use/access and efficiency form Factor 2. Being consistent with economic sense, Granger ¨C Causality test shows that no financial factor significantly causes economic growth; rather economic growth causes ¡°depth/stability¡± (¡®private credit + capitalization¡¯ /non-performing loan) factor of financial sector during the period. In summary, on average, financial sector of Bangladesh is being unstably (being increased non-performing loan) deepened with response to the demand of economic growth since 1988.

Keywords: finance ¨C growth nexus; factor analysis; depth/stability; efficiency/accessibility; Bangladesh (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ibn:ijefaa:v:9:y:2017:i:8:p:229-238

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