The impact of economic reforms on growth: a case study of Bangladesh

This study makes a brief assessment of the consequences of economic reforms that included a series of liberalization measures on Bangladesh's growth process by analyzing the 1974-2007 data with the help of cointegration, error correction, and Granger causality tests. The results suggest that long-run economic growth in Bangladesh is largely explained by investments in both physical and human capital, trade openness, and financial as well as capital account liberalization. While the causality runs in both ways between capital account liberalization and economic growth, it runs only in one direction from physical capital and financial liberalization to economic growth in the short-run. Interestingly, growth is not affected by trade openness in the short-run. While trade liberalization and capital account liberalization have had significant positive impacts on economic growth in the long-run, the effects of financial liberalization were found to be significantly negative. This emphasizes the need for ensuring real sector development as a prerequisite for the success of financial liberalization