An Empirical Analysis of Financial Development and Economic Growth in Bangladesh

Abstract

The two most significant components for a country's progress are financial development and economic growth. These two elements have a straight causal role in a country's development. The GDP is heavily affected by financial factors such as bank deposits, bank loans and advances, government spending, and private investment. From 1980 to 2023, we can see the impact of various financial components on Bangladesh's GDP. Some studies have found that banking and economic growth has a strong positive link both in the short run and in the long run, whereas some other studies show weak link between these two. One study found that OIC member countries have a positive link between banking sector and economic growth. By examining T-test and F-test, I find out that if the data is statistically significant or not. Here, I found that most of the data are statistically significant which means that the financial development has been made over the period from 1980-2023. The descriptive statistics, I try to show several statistical applications such as correlation and co variance matrix, multicollinearity problem, Heteroscedasticity, OLS regression model and unit root test and revised OLS regression model. From these tests, I found that there is no Heteroscedasticity problem and converting the non-stationary data into stationary through first difference. From OLS regression model, I can try to show that how much percentages contribute my independent variables to GDP, which is around 62.43% from 1st OLS regression model and 19.65% from revised OLS regression model. In the conclusion I can conclude that Bangladesh's economic growth from 1980 to 2023 was boosted by variables related to financial development.