Financial Development and Poverty Reduction Nexus:A Cointegration and Causality Analysis in Bangladesh

This study investigates 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, since the role of financial sector in mobilizing and allocating savings into productive investments. All variables are tested for their order of integration using the ADF and Zivot-Andrews structural break tests. The results show that the variables are integrated at I(1). We then apply a simulation based the ARDL approach to cointegration by incorporating structural breaks stemming in the series for long run relation. Our empirical findings indicated that long run relationship between financial development, economic growth and poverty reduction exists in Bangladesh. The diagnostic tests show that the underlying assumptions of the statistical model are fulfilled. The implication of the empirical findings is explained in the main text.