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http://dx.doi.org/10.13106/jafeb.2021.vol8.no3.0165

Nexus between Financial Development and Economic Growth: Evidence from Sri Lanka  

FATHIMA RINOSHA, Kalideen (Department of Economics and Statistics, South Eastern University of Sri Lanka)
MOHAMED MUSTAFA, Abdul Majeed (Business Economics, Faculty of Management and Commerce, South Eastern University of Sri Lanka)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.3, 2021 , pp. 165-170 More about this Journal
Abstract
This paper examines the long-run relationship between financial development and economic growth. The effective function of financial development is crucial to promote the economic development of the country. To achieve the objective, this study used Gross Domestic Product as a dependent variable and Credit to The Private Sector, Ratio of the Gross Fixed Capital Formation to GDP, Trade, Consumer Price Index and Labour Force as an independent variable. Augmented Dickey-Fuller test statistic (ADF) to check the stationary. Bounds test for cointegration and Auto-Regressive Distributed Lag Models (ARDL) are used to check cointegrating relationship amongst the variables and causality between financial development and economic growth. Moreover, the Model selection method is Akaike Info Criterion (AIC). This result demonstrates that the labor force and trade hold a significantly negative relationship with economic growth. Nevertheless, inflation, Credit to The Private Sector, and Ratio of the Gross Fixed Capital Formation to GDP show a significantly positive relationship with economic growth. Therefore, there is a statistically significant relationship between Financial Development and Economic growth in Sri Lanka and the Sri Lankan government should reform its trade policies.
Keywords
Economic growth; financial development; Private Sector; Gross Fixed Capital Formation; Consumer Price Index;
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