Bangladesh Bank Training Academy Journal

Abstract: The current paper attempts to explore the role of bank financing in economic growth in Bangladesh during the post-independence period. To this end, it would apply Co-integration and Vector Error Correction Model (VECM) to examine the impact of bank financing on Bangladesh GDP during 1980-2020. The empirical results confirm the superior role of bank financing in spurring GDP in Bangladesh. The paper suggests for choosing bankable projects with proper feasibility study to avoid diversion of funds and keep non-performing loan (NPL) at tolerable limit. It also recommends for developing capital market for long-term financing to lessen the adverse impacts of maturity mismatch in funds of banks. In this case, Islamic Shariah compliant sukuk based financing model can ease the pressure on banks by financing industrial and infrastructural projects in more sustainable way.

Citation: Nabi, M. G., Islam, M. S., Uddin, M. J., & Talukder, M. S. (2022). Bangladesh at 50: Does bank financing propel economic growth in Bangladesh? Thoughts on Banking and Finance, 9(1), 1–23.

Abstract: This paper aims to delineate the relationships between saving and economic growth. It also focuses on the demographic correlates of saving, rooted in the life-cycle hypothesis of Modigliani and tries to confirm the validity of that hypothesis. This study attempt at estimating the saving function and growth function as a system of equations using three stage least square method with data from 1981-2017. It also attempts to differentiate the responses of the developed and developing countries. The results show that, saving plays an important role in economic growth regardless the economic condition of a country. But the life-cycle hypothesis and the variables related to it explain variation in domestic saving rates of the high-income countries much better than it does that of the low-income countries.

Citation: Fatin, L. (2022). Role of saving and demographics on economic development: A panel data approach. Thoughts on Banking and Finance, 9(1), 24–41.

Abstract: Government owned banks have always raised questions by their business performance in Bangladesh since its inception in 1971. Therefore, the country has implemented a massive reform in the mid-1990sto increase the financial performanceof all banks by switching toa greater deregulated and market based banking sector. This paper attempts to conduct a comparative assessment of this deregulation effort on different groups of banks in Bangladesh. We have conducted both statistical analyses and econometric investigations on the comparative performance of the government and other types of commercial banks only for their post-deregulated operation period. The study has found an overwhelming support of lower performance by the government banks compare to the private and foreign commercial banks even though government banks were doing business not only in a level playing field but also with additional supports from the government and regulatory authorities (i.e. central bank etc.) of the country. Thus, the findings of this study indicate that reform for shiftingin a deregulated market based banking regime has not improved the financial performance of the government banks in Bangladesh. So, the government banks in this countryshould contemplate in cost reduction, explore more profitable and technology based banking services, and cost efficient business operations to ameliorate their financial performance in future.

Citation: Kashem, M. A. (2022). Post deregulation performance of government banks in Bangladesh: Imperative of further reform. Thoughts on Banking and Finance, 9(1), 42–74.

Abstract: This paper analyzes the effect of Foreign Direct Investment (FDI) on income inequality from two perspectives- the sectoral composition of FDI and the mode of entry of FDI. From the first perspective, FDI inflow is divided into three major sectors of economic activity namely primary, manufacturing and service sector. From the second perspective, FDI is divided into greenfield FDI and cross border mergers & acquisitions (M&A) FDI. Two different models have been used to estimate the results. The first model is controlled for Kuznets Hypothesis and the second model is controlled for technology, globalization and other relevant macroeconomic variables. Both the models have been estimated using OLS & Fixed Effect estimation method. The results show that total and service sector FDI increase income inequality in both short and long run whereas manufacturing and primary sector FDI has no statistically significant effect on income inequality. On the other hand, both greenfield FDI and M&A FDI increase income inequality in the long run. Moreover, human capital has a strong conditional effect on primary, manufacturing and service sector FDI in reducing income inequality.

Citation: Islam, S. M. (2022). Effects of foreign direct investment on income inequality: Do sector and mode of entry matter? Thoughts on Banking and Finance, 9(1), 75–94.

Abstract: The expansion of trade and industry significantly impacts an economy, ultimately influenced by the capital market. A country's central bank, government advisors, and business organizations closely monitor stock market activity. The main objective of this paper is to investigate the role of stock market capitalization in promoting economic growth in Bangladesh. To attain the goal, this study applied the unit root test, Granger causality test, Cointegration techniques, and Vector Error Correction model (VECM) by using yearly time series data from 1990 to 2020. The granger causality showed a bidirectional causal relationship between the variables. The findings confirm a positive and significant impact of stock market capitalization on GDP growth. Furthermore, the estimated error correction term suggests that the economy will correct the disequilibrium in GDP growth and converge to the equilibrium at a 4.2% rate in a year. Therefore, this study advocates the stock market regulatory body address policy concerns that would encourage new companies to enter the market and increase investors' confidence.

Citation: Rahman, M. M., Uddin, M. J., Miah, M. N., & Alamin, M. (2022). Does market capitalization promote economic growth? A case study of Bangladesh. Thoughts on Banking and Finance, 9(1), 95–110.

Abstract: The inflow of remittances in foreign currency increases the supply of foreign exchange in the domestic market, leading to an increase in the foreign exchange reserve of the country. In Bangladesh, remittance inflows play a significant role in the country's economy, as it is one of the top recipients of remittances globally. The main objective of this study is to investigate the impact of remittance inflow on foreign exchange reserve in Bangladesh. To fulfill this objective this study applied ARDL bound testing approach of cointegration to test the long-run and short-run relationship by using the data from 1988-2022. The paper finds significant positive impact of remittance on the foreign exchange reserve in long run however negative and insignificant affect in the short run. On the contrary, trade and inflation showed a a significant but negative impact on the reserve in the long run. Furthermore, the estimated error correction term suggests that the economy will correct the disequilibrium in reserve and converge to the equilibrium at a 58% rate in a year.

Citation: Talukder, M. S., Bhattacharjee, P., Miah, M. N., & Ahmed, A. (2022). Does remittance inflow affect foreign exchange? Thoughts on Banking and Finance, 9(1), 111–129.