Liberalization and growth: An econometric study of Bangladesh

Bangladesh adopted a liberal economic regime, particularly in the areas of trade, finance, and capital account, since mid-1980s. This study seeks to evaluate the impact of liberalization on the country's economic growth by analyzing the 1974-2002 data with the help of cointegration and error correction methods. The empirical results suggest that long-run economic growth in Bangladesh is largely explained by physical capital and real interest rate and growth remains unaffected by short-term changes in labor force and secondary enrollment ratio. While financial liberalization has had significant negative impacts on economic growth implying that financial reforms failed to attract new investment due to adverse investment climate, the effects of trade and capital account liberalizations were rather insignificant, possibly due to weak supply response and lack of credibility of such reform programs. Bangladesh will not reap the full benefits of any comprehensive liberalization measures unless it can improve infrastructure and quality of governance, the paper argues