BANK, STOCK MARKET AND ECONOMIC GROWTH: BANGLADESH PERSPECTIVE

Prashanta Kumar Banerjee, Md. Nehal Ahmed and Md. Mosharref Hossain ()
Additional contact information
Md. Mosharref Hossain: Bangladesh Institute of Bank Management (BIBM), Bangladesh

Journal of Developing Areas, 2017, vol. 51, issue 2, 17-29

Abstract: The paper empirically investigates the relationship between bank, stock market and economic growth in Bangladesh. In investigating empirical relationship , GDP at the current price, private sector credit given by banks and market capitalization are considered as indicators of economic growth, banks’ development and stock market development, respectively. Three possible regression models are estimated to know the relationship between economic growth and financial sector development. The paper shows that bank’s credit to the private sector is both positively and robustly contributing to the economic development of the country when bank credit to private sector entered alone in regression as an independent variable. Besides long-term relationship, contemporaneous change in bank’s credit to the private sector has profound positive short-run feedback effects to the economic growth. In assessing impact of stock market development on economic growth, no significant long-run relationship is found between stock market development and economic growth in Bangladesh. However, net positive subdued short-term effect of stock market development is evident. But when both bank and equity market jointly enter the model to find out the relationship of both variables with economic growth, a long-run relationship has been evident without statistical significance. It indicates that Bangladeshi financial system comprising both banking sector and stock market jointly is not still a strong promoter of its economic growth, although banking development alone is robustly associated with economic development.Bangladesh therefore needs to enhance the efficiency of banks for increasing credit to the private sector. An immediate initiative is also required to make both equity and debt market as regular sources of finance for the economy. In this perspective, ensuring smooth operation of primary and secondary market, increasing financial literacy among investors, minimizing volatility of the market, expanding issuer base, creating both individual and institutional investors, enhancing efficiency of the brokerage house, adding innovative financial services, initiating knowledge based trading, introducing shelf registration system, creating more professional trustee and ensuring authenticate credit rating from the rating agencies are required to be ensured.

Keywords: Bank Credit to Private Sector; Equity Market; Economic Growth; Cointegration (search for similar items in EconPapers)
JEL-codes: C22 E44 G21 G24 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://muse.jhu.edu/article/657925

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.51:year:2017:issue2:pp:17-29

Access Statistics for this article

More articles in Journal of Developing Areas from Tennessee State University, College of Business Contact information at EDIRC.
Bibliographic data for series maintained by Abu N.M. Wahid ().