Economic liberalisation and growth in Bangladesh, 1974-1995
This thesis investigates, theoretically and empirically, the impact of financial (FL) and trade liberalisation (TL) on the rate of economic growth in Bangladesh using annual data from 1975-1995. This thesis also explores the determinants of unofficial market (UM) exchange rates in Bangladesh using quarterly data from 1976q2-1995q2. The literature survey in chapter two argues that both FL and TL raise the rate of economic growth. After reviewing financial and trade policies in Bangladesh in chapter three, a theoretical model has been developed and applied to Bangladesh in chapter four in order to examine the effect of FL on the rate of economic growth. This model incorporates per capita real income, investment in both physical and human capital, financial deepening and real interest rates. The theoretical and empirical models reveal that investment in human capital, financial deepening and interest rate liberalisation positively affect the rate of economic growth. However, the impact of interest rates is very low. The simultaneous impact of financial development and TL on the rate of economic growth in Bangladesh is also explored theoretically and empirically in chapter six. Results reveal that both FL and TL jointly raise the rate of economic growth. Finally, the determinants of UM exchange rates are identified in chapter eight in order to examine the causes of distortions in the foreign exchange markets and to explore the roles of both FL and TL policies in removing these distortions. It is observed that trade restrictions with overvalued exchange rates and an increase in money supply generate UMs for foreign exchange in Bangladesh.