Dynamics of financial development, trade openness, technological innovation and energy intensity: Evidence from Bangladesh

Abstract

Using annual time series data for the period 1976 to 2014, this study attempts to empirically examine the contemporaneous causal linkages among financial development, trade openness, technological innovation and energy intensity in Bangladesh. Directed acyclic graphs (DAG) technique and structural vector autoregression (SVAR) model are applied to yield inference on the dynamic causal relationships among the variables. The DAG results confirm that financial development, trade openness, economic growth and technological innovation influence energy intensity where financial development, trade openness and technological innovation have influence on economic growth. The results of forecast error variance decomposition from SVAR model verify the fact that economic growth has greater impact on energy intensity in short-run, but with the extension of forecast period, the promotion effect of it gradually decreases. On the other hand, the promotion effect of trade openness on energy intensity gradually increases over time and become highest in long-run. Technological innovation also plays an important role in promoting energy intensity where it is influenced by financial development and trade openness.