Is the lead-lag relationship between financial development and economic growth symmetric ? new evidence from Bangladesh based on ARDL ad NARDL

Faathih Zahir and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: The nexus between financial development and economic growth has been the subject of many literature. Researchers have tried to find if the causality is unidirectional, if so which variable causes the growth of the other or if it was bi-directional. However, the results of these researches have been conflicting and no definitive solution to this has been discovered. The purpose of this paper is to apply time series techniques to investigate this relationship. The focus of this study was based on Bangladesh because it was very recently classified by the UN as a developing country and such a study would help the government with critical information for formulating policies for its development. To the best of our knowledge, Bangladesh has not been the interest of such a study in the past. Time series techniques such as Autoregressive distributed lags (ARDL) and the more recent Non-linear autoregressive distributed lags (NARDL) were used. The results were paired with Variance decomposition techniques to strengthen the results. Annual data from 1972 to 2016 was obtained from the World Bank data bank. This study revealed that there is a strong positive co-integrating relationship between financial development and economic growth in Bangladesh and that the finance variable leads the economic growth variable suggesting a supply-leading hypothesis. Finally, the results revealed only a short run symmetry between the variables.

Keywords: Financial Development; economic growth; symmetric; ARDL; NARDL (search for similar items in EconPapers)
JEL-codes: C22 C58 G23 (search for similar items in EconPapers)
Date: 2018-06-14
New Economics Papers: this item is included in nep-ets and nep-fdg
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