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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.

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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.

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