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Re‐Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in B angladesh
Author(s) -
Shahbaz Muhammad,
Rehman Ijaz Ur,
Muzaffar Ahmed Taneem
Publication year - 2015
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/saje.12063
Subject(s) - economics , nexus (standard) , cointegration , openness to experience , gross domestic product , granger causality , capitalization , per capita , monetary economics , financial sector development , real gross domestic product , macroeconomics , financial sector , finance , econometrics , psychology , social psychology , population , linguistics , philosophy , demography , sociology , computer science , embedded system
This paper revisits the relationship between financial development and economic growth in B angladesh by incorporating trade openness in production function using quarter frequency data over the period of 1976‐2012. We applied combined Bayer–Hanck cointegration approach to examine cointegration among the series. Our empirical evidence suggests that development of financial sector facilitates economic growth but capitalization impedes it. In addition, trade openness stimulates economic growth. Labour is also positively linked to economic growth. The vector error correction model Granger causality results divulge that financial development causes real per capita gross domestic product ( GDP ) growth, and resultantly, real per capita GDP growth causes financial development in a Granger sense. The results also show that trade and labour Granger cause economic growth. The findings of the paper provide insights for policymakers to use financial development and trade openness as a tool for sustained economic growth in the long run. The paper also suggests policymakers to utilise capitalization in a way that is beneficial for economic growth of B angladesh.