Analysis of the Relationship between Financial Development and Economic Growth: Evidence from Nepal

Abstract

The present article aims to examine the link between financial development and economic growth in Nepal covering the period from 1979 to 2018. The study applies the method of Auto-Regressive Distributed Lag (ARDL) bound test cointegration approach to investigate both the long and short runs relationship among the variables. The empirical results found that the long-run cointegrated relationship between financial development and economic growth in Nepal. The findings clearly shows that financial development has a positive impact on economic growth both in the long-run as well as the short-run, which suggests that financial development has been a key contributor and an important engine of growth performance in the Nepalese economy. Moreover, the results may help policy makers to take into account financial development variable as an instrument for economic growth in the country.