Impact of Financial Development and Globalization on Inflation: The Role of Remittance and Economic Growth in Bangladesh

Satti, Saqlain Latif and Shahbaz, Muhammad and Mujahid, Nooreen and Ali, Amjad (2013): Impact of Financial Development and Globalization on Inflation: The Role of Remittance and Economic Growth in Bangladesh.

Abstract

The present study investigates the impact of financial development and globalization on inflation by incorporating foreign remittances and economic growth in inflation function in case of Bangladesh. The study covers the period of 1976Q1-2012Q4. We have applied structural break unit root test to examine integrating properties of the variables. The long run relationship between the variables is examined by applying newly developed cointegration approach by Bayer and Hanck, (2013) accommodating structural breaks in the series.

Our results confirm the presence of cointegration between the variables in the presence of structural breaks. We find that financial development increases inflation. Globalization stimulates inflation. Economic growth declines inflation but foreign remittances raises it. The causality analysis reveals the bidirectional causality between financial development and inflation. The feedback effect exists between economic growth and inflation and, same is true for financial development and economic growth. Foreign remittances Granger cause inflation and inflation Granger cause foreign remittances.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial Development, Globalization, Inflation, Bangladesh
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models

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