Financial Development, International Trade and Economic Growth Nexus (1971-2016): Examining Bangladesh Perspective

Abstract

Studies have examined economic growth mostly without inspecting the combined effect of international trade (IT) and financial development (FD). Considering Bangladesh's perspective, this study investigates the nexus of IT, FD, and economic growth. Time-series econometric data covering 1971-2016 are used. Econometric techniques that are used to meet the objectives are mainly the “Augmented Dickey-Fuller” for unit root test, “Johansen and Juselius” test for co-integration and popular VECM for checking long-run equilibrium relation and causality test. The exploratory findings of this study show that a long-run equilibrium relationship exists among the IT, FD and the growth of the economy. This study also finds unidirectional or one-way long-run causality from IT and FD to the economy's growth, and in the short-run, bidirectional causality is running from IT to Economic growth and Economic Growth to IT. Policies related to further FD and trade openness are suggested for accelerating the growth of Bangladesh economy.