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Testing financial liberalization hypothesis with ARDL modelling approach

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  • Min Shrestha
  • Khorshed Chowdhury

Abstract

It is a stylised fact that financial 'repression' retards economic growth. Hence, financial liberalization is advocated to remove the stranglehold on the economy. Financial liberalization policy argues that deregulation of interest rate would result in a higher real interest rate which would lead to increased savings, increased investment and achieve efficiency in financial resource allocation. Past studies have reported inconclusive results regarding the interest rate effects on savings and investment. This examines the financial liberalization hypothesis by employing autoregressive distributed lag (ARDL) modelling approach on Nepalese data. Results show that the real interest rate affects both savings and investment positively.

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  • Min Shrestha & Khorshed Chowdhury, 2007. "Testing financial liberalization hypothesis with ARDL modelling approach," Applied Financial Economics, Taylor & Francis Journals, vol. 17(18), pages 1529-1540.
    • Handle: RePEc:taf:apfiec:v:17:y:2007:i:18:p:1529-1540
    DOI: 10.1080/09603100601007123
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    11. Bishnu Prasad Gautam, Ph.D., 2015. "Role of Financial Development in Economic Growth of Nepal: An Empirical Analysis," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 27(1), pages 1-16, April.
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    18. Qazi Hye & Wee-Yeap Lau & Marie-Aimée Tourres, 2014. "Does economic liberalization promote economic growth in Pakistan? An empirical analysis," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(4), pages 2097-2119, July.
    19. Bibhuti Sarker & Farid Khan, 2020. "Nexus between foreign direct investment and economic growth in Bangladesh: an augmented autoregressive distributed lag bounds testing approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-18, December.
    20. Qazi-Muhammad Adnan Hye & Wee-Yeap Lau, 2018. "Does Financial and Trade Liberalization Drive Private Savings in Pakistan?," Asian Development Policy Review, Asian Economic and Social Society, vol. 6(4), pages 198-212, December.
    21. Makuyana Garikai & Odhiambo Nicholas M., 2018. "Public and Private Investment and Economic Growth: An Empirical Investigation," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(2), pages 87-106, August.
    22. Clement Moyo & Pierre Le Roux, 2019. "Interest Rate Reforms and Economic Growth in SADC Countries: The Savings and Investment Channel," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 66(4), pages 507-523, December.
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