Effect of Capital Inflows on Financial Development: The Case of Bangladesh
DOI:
https://doi.org/10.18034/ra.v10i3.626Keywords:
Remittances, FDI, Financial Development, ARDL, Error Correction MethodAbstract
This study examines the effect of capital inflow components' on Bangladesh's financial development. The analysis applied the Autoregressive Distributive Lag (ARDL) model to reveal short-run and long-run associations by utilizing monthly data from January 2011 to December 2021. The study appoints two proxy variables: bank credit to GDP and bank deposit to GDP to address financial development. Findings of the analysis demonstrated that FDI and remittance inflow don't exhibit a significant relationship with financial development in the long run. However, foreign aid established a nexus with the financial progress of Bangladesh. The study recommends enacting policies to keep capital inflows under Bangladesh's financial system by repatriating foreign investors' profits and lessening remittance costs by facilitating and modernizing remittance management.
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