The Impact of Macroeconomic Variables on Bangladesh’s Economic Growth- A VEC Model and Granger Causality Test Analysis

International Journal of Economics and Management Studies

© 2020 by SSRG - IJEMS Journal

Volume 7 Issue 12

Year of Publication : 2020

Authors : Md. Masud Chowdhury, Kazi Saifur Rahman

10.14445/23939125/IJEMS-V7I12P104

How to Cite?

Md. Masud Chowdhury, Kazi Saifur Rahman, "The Impact of Macroeconomic Variables on Bangladesh’s Economic Growth- A VEC Model and Granger Causality Test Analysis," SSRG International Journal of Economics and Management Studies, vol. 7,  no. 12, pp. 25-35, 2020. Crossref, https://doi.org/10.14445/23939125/IJEMS-V7I12P104

Abstract:

This research investigates the impact of macroeconomic variables (official exchange rate, the long term external debt stocks, and terms of trade adjustment) on the economic growth (GDP growth rate) of Bangladesh over 27 years from 1972 to 2018. VEC model and pair-wise Granger causality test is used to understand the type of relationship and the impact of variables on economic development. The study finds that although there is no evidence of short-run causality running from independent variables (OER, ED, and TTA) to GDPG, in long run, OER and ED have a significant positive impact on GDPG, whereas TTA has a significant negative impact, on average, ceteris paribus. Besides, when 1 lag is applied according to all information criteria, the study finds that there is a unidirectional causality running from all independent variables (OER, ED, and TTA) to GDPG.

Keywords:

GDPG, OER, ED, TTA, VEC MODEL, GRANGER CAUSALITY TEST.

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