The link between economic growth and financial development: Evidence from districts of Bangladesh

Md. Alauddin Majumder () and Ellis Eff ()

MPRA Paper from University Library of Munich, Germany

Abstract: Since the days of Walter Bagehot, a number of economists have described how financial development facilitates economic growth. An extensive empirical literature has subsequently established that the relationship between financial development and economic growth is conditioned by the cultural and legal environment, so that the positive effects of financial development on economic growth might not exist within any given national context. This study investigates whether financial growth has any role in the economic development of Bangladesh, using district-level data to estimate a spatial model. We find that both too little and too much financial development harms growth. We explain this pattern by arguing that the theoretical literature is indeed correct, that financial development facilitates growth, but that Bangladesh exhibits a pattern previous studies have found in Turkey and China, of widespread political interference with the financial sector, so that financial resources are not allocated to investments with the highest rate of return.

Keywords: Banks; financial deepening; regional economic growth; Bangladesh (search for similar items in EconPapers)
JEL-codes: G21 R11 (search for similar items in EconPapers)
Date: 2012-10
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Citations: View citations in EconPapers (1)

Published in International Research Journal of Finance and Economics 99 (2012): pp. 106-118

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:44122

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