The Causal Relationship between Private Sector Credit Growth and Economic Growth in Bangladesh: Use of Toda-Yamamoto Granger Causality test in VAR Model

Paul, Uttam Chandra (2020): The Causal Relationship between Private Sector Credit Growth and Economic Growth in Bangladesh: Use of Toda-Yamamoto Granger Causality test in VAR Model.

Abstract

This paper examines the causal relationship between private sector credit growth and economic growth in Bangladesh by using annual time series data over the period of 1976-2017. To investigate this relationship, the Autoregressive Distributed Lag (ARDL) Approach has been used. In addition, this paper examines the direction of causality by adopting the Toda-Yamamoto procedure of Granger Causality test in the VAR model. The empirical results show that the annual growth rate of private sector credit (PC) and industrial production index (IPI) have a positive and significant effect on annual growth rate of GDP in both long-run and short-run. But there is only a short-run positive effect of export (X) and a negative effect of broad money (BM) on GDP growth rate. Finally, the results of the Toda-Yamamoto Granger Causality test show that there is unidirectional causality from GDP growth rate to private sector credit growth rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bangladesh, GDP growth, Private sector credit growth, Autoregressive Distributed Lag (ARDL) Approach, Toda-Yamamoto Granger Causality test.
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

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