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Financial Repression and Economic Distortions to the Stage of Economic Growth and Agricultural Development in Bangladesh

S.M.A. Islam
The Millennium University, Momenbagh, Dhaka

Abstract/ Executive Summary:

Financial repression in a developing country is not new to us. The government may take policy for financial repression due to easy collection of inflation tax to the stage of economic development. This study is concerned to find the positive relationship between financial development and economic growth and productivity in the economy of Bangladesh. The research concluded that the financial repression has a negative relationship to the economic growth and productivity but the financial development is positively to relate the economic growth and productivity in the economy of Bangladesh. This study found evidence that the effect of financial repression is positive to the financial development in Bangladesh as it was to the high growth period in Japan. But the scenario was different for Latin American countries. Transition to the financial development from the stage of financial repression to the stage of financial liberalization is found positive to the economic growth and productivity in Bangladesh. The rural finance in agro sector is statistically significant at the level of 5% in two tail test and contributing financial sector development where the urban finance is still suffering various economic distortions to the economic growth and productivity.

Keywords: Financial Repression, Economic Distortion, Sustainable Economic Growth

Location: Department of Business Administration, The Millennium University

Start Date: 00-00-2008

End Date: 00-00-2008

Program Area: Socio-economic and Policy

Non-commodity: Analysis and interpretations

Objectives:

1. To find the positive relationship between financial development and economic growth and productivity in the economy of Bangladesh.

Methodology:

The methodology has been divided into four steps. Step-1, we have produced the methodology of calculation of productivity growth rates, step-2, panel regression, and step-3, the dynamic panel, step-4, methods of GMM estimation to test the econometric models for the relationship between economic growth and financial development to the stage of financial repression.

Source of Information: J. Bangladesh Agril. Univ. 6(2): 437–448, 2008; ISSN 1810-3030

Article Link (Online Journal):

Funding Source:

Total Budget (Tk.) :

Achievement/Findings:

This research finding concluded that in initial stage of economic development financial repression is natural due to implementation of various government policies with a view to easy collection of inflation tax. We may treat financial sector as a stage of transition from financial repression to the stage of financial liberalization to the stage of sustainable economic growth. This economic situation was prevailed in the early stage of high economic growth period in Japan as it is now in Bangladesh. Therefore, the government of a developing country should consider financial liberalization in accordance with the demand of domestic financial development not to match with the demand of financial globalization in the early stage of economic development

Knowledge Management: Journal