Financial development and poverty reduction nexus: A cointegration and causality analysis in Bangladesh

• Published in: Economic modelling Vol. 36; pp. 405 - 412
• Main Authors: Uddin, Gazi Salah, Shahbaz, Muhammad, Arouri, Mohamed, Teulon, Frédéric
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-01-2014; Elsevier Science Ltd
• Subjects: Bangladesh; Causality; Cointegration; Cointegration analysis; Econometrics; Economic development; Economic growth; Economic theory; Financial development; Poverty; Poverty alleviation; Studies; TECHNOLOGY; TEKNIKVETENSKAP; Bangladesh; 132; O1; Poverty; Economic growth; G21; Financial development
• ISSN: 0264-9993; 1873-6122; 1873-6122
• DOI: 10.1016/j.econmod.2013.09.049

This paper contributes to the literature by investigating the relationship between financial development, economic growth and poverty reduction in Bangladesh using quarter frequency data over the period of 1975–2011. This issue is of importance for developing economics given the role of financial sector in mobilizing and allocating savings into productive investments. We use an innovative empirical approach based on ARDL cointegration with structural breaks. Our findings show that a long-run relationship between financial development, economic growth and poverty reduction exists in Bangladesh. Financial development helps to reduce poverty, but its effect is not linear.
•We investigate short- and long-run relationships between financial development, economic growth and poverty reduction.•We use an innovative empirical approach based on ARDL cointegration with structural breaks.•We show that a long-run relationship exists between these variables in Bangladesh.•Financial development helps to reduce poverty, but its effect is not linear.