Académique Documents
Professionnel Documents
Culture Documents
1. Introduction
Bangladesh remains a poor, overpopulated, and inefficiently-governed nation. Although
more than half of Gross Domestic Product (GDP) is generated through the service
sector, nearly two-thirds of Bangladeshis are employed in the agriculture sector, with
rice as the single-most-important farm produce. Economic growth is supported by
garment exports and remittances from Bangladeshis working overseas. In 2008,
Bangladesh pursued a monetary policy aimed at maintaining high employment, but it
also resulted in higher inflation rate in the process. In 2008, the country grew at the rate
of 4.9% with the per capita income growth of $1500 US per annum (World Bank 2009).
According to http://ns.bdnews24.com/details.php?id=199118&cid=2 (June/22/2011) the
National Economic Council of Bangladesh has cleared the Sixth Five Year Plan
involving Tk 13.47 trillion. It has been estimated that the gross domestic product (GDP)
will grow at 7.3 percent and stand at eight percent by the end of the plan.
________________________________________________________________________________________
*Professor and Head M.H. School of Business, Presidency University, Bangladesh and Chairman, Center
for Breakthrough Thinking in Bangladesh.e-mail:pipulbd@gmail.com
**Senior Lecturer, School of Commerce and Marketing, Central Queensland University
Australia,e-mail: a.medhekar@cqu.edu.au
65
66
68
Here we use alternative definition of money, i.e. M1 and M2, and assume following
priori relationship:
GDP is positively related to consumption, investment, domestic saving, national
saving, money supply and foreign exchange reserve. Rate of interest on deposit is
71
PROB.
0.5236
0.0158
0.2556
0.0091
0.8486
0.9957
0.0000
0.9746
0.0000
Considering equation (1B), we find that domestic saving and broad money are
significant at 5% and 1% level of significance respectively. The equation provides a
good fit at 97% of the observed variation in the gross domestic product. Durbin- Watson
72
PROB.
0.0317
0.1482
0.0439
0.0000
0.2535
0.3460
0.1678
0.9728
0.0000
In equation (2A), we observed that GDP and consumption are significant at 1% and 5%
level of significance respectively. The equation provides a good fit at 95% of the
observed variation in narrow money. Durbin- Watson statistics is 1.603477, which
indicates that no autocorrelation prevails at 1% level of significance. F-statistics is
significant at 1% level of significance.
Equation No: 2A
Dependent Variable: M1
Method: Two Stage Least Squares
Instrument list: FAL H INVT CONS TNBB NFA
VARIABLE COEFFICIENT STD.ERROR T-STATISTIC
C
-890.6034
5204.635
-0.1711
GDP
0.0959
0.0270
3.5396
BR
272.9141
665.2476
0.4102
CONS
0.0045
0.0019
2.3554
DS
-0.0070
0.0140
-0.5044
FER
-0.0008
0.0382
-0.0234
DM
5143.081
9983.554
0.5151
R Square
0.9579
Adjusted
Rsquare
F-statistic
120.9762
Prob (F-statistic)
Durbin-Watson stat.
1.6034
PROB.
0.8658
0.0019
0.6858
0.0283
0.6192
0.9815
0.6118
0.9514
0.0000
PROB.
0.7739
0.0101
0.7615
0.4257
0.3403
0.6276
0.6272
0.9405
0.0000
PROB.
0.2254
0.0203
0.5990
0.6649
0.6599
0.3759
0.5486
0.8730
0.0000
Equation 3B shows that GDP is significant at 5% level of significance. Here the equation
provides a good fit at the 87% of the observed variation in the foreign exchange
reserve. Durbin- Watson statistics is 1.5821 , which indicates that no autocorrelation
prevails at 1% level of significance. Dummy variable is significant at 5% level of
significance, which implies that structural change has occurred. F-statistics is significant
at 1% level of significance.
74
42081.81
1.0749
-10325.82
0.0141
0.0224
2.2333
0.1682
F-statistic
Durbin-Watson stat.
119691.3
0.4150
18755.65
0.0305
0.0498
7.3315
0.0673
0.8823
26.8220
1.5821
0.3515
2.5897
-0.5505
0.4617
0.4515
0.3046
2.4981
Adjusted
Rsquare
Prob(F-statistic)
PROB.
0.7295
0.0191
0.5891
0.6501
0.6573
0.7644
0.0197
0.8797
0.0000
PROB.
0.4630
0.0266
0.3159
0.0126
0.9311
0.9592
0.3968
0.9921
0.9733
0.0000
In equation 4B, we find that investment and rate of interest on deposit is significant at
5% level of significance. The equation provides a good fit at the 91% of the observed
variation in the gross domestic product. Here we use AR (1) to remove autocorrelation
problem. F-statistics is significant at 1% level of significance.
75
-79863.98
-0.0480
0.5179
0.0011
7972.294
-5.5839
-9253.656
-0.1696
F-statistic
Durbin-Watson stat
36537.66
0.0423
0.2523
1.0441
3634.989
5.6203
34243.25
0.2426
0.9187
369.8355
1.9648
PROB.
-2.1857
0.0416
-1.1354
0.2703
2.0526
0.0541
0.0011
0.9991
2.1932
0.0409
-0.9935
0.3329
-0.2702
0.7899
-0.6992
0.4928
Adjusted R- 0.9100
square
Prob(F-statistic) 0.0000
-138.6187
0.0976
-187.3764
0.0045
-0.0063
0.0008
4310.607
0.0025
F-statistic
Durbin-Watson stat
4848.517
-0.028590
0.026264
3.717900
614.2428
-0.305053
0.001945
2.361074
0.013734
-0.459201
0.036667
0.022812
9383.615
0.459376
0.239532
0.01437
0.9397 Adjusted Rsquare
100.79 Prob(F-statistic)
55
1.7469
0.9775
0.0015
0.7636
0.0291
0.6513
0.9820
0.6512
0.9918
0.9320
0.0000
PROB.
0.8448
0.0123
0.8239
0.0616
0.3934
0.6434
0.6698
0.9924
0.9404
0.0000
-36979.33
-1.0437
10357.00
-0.0161
0.0274
2025527
-6240.654
0.8451
-0.0587
0.8769
F-statistic
21.7739
Durbin-Watson stat. 1.6169
35818.43
0.4087
23727.27
0.0438
0.0654
10.4451
8761.889
0.2431
0.4243
-1.0324
-2.5538
0.4365
-0.3690
0.4190
0.1939
-0.7122
3.4766
-0.1385
Adjusted
Rsquare
Prob(F-statistic)
PROB.
0.3172
0.0212
0.6683
0.7170
0.6807
0.8487
0.4866
0.0021
0.8915
0.8701
0.0000
77
148633.3
0.3794
23256.87
0.0378
0.0513
10.1838
7343.351
0.1262
0.3718
0.8991
24.3635
1.6848
0.4002
-2.7536
-0.5641
-0.4961
0.4698
0.0581
-0.8937
6.0944
-0.2987
Adjusted R-square
Prob(F-statistic)
PROB.
0.6943
0.0141
0.5805
0.6265
0.6448
0.9544
0.3847
0.0000
0.7690
0.8838
0.0000
To sum up, the study observes that GDP is the key factor of the measurement of macro
economy. Consumption and narrow money have a significant relationship with GDP.
Broad money and domestic saving also have an impact on the economy. Narrow money
has a relationship with GDP and consumption. Broad money has a significant
relationship with GDP. Foreign exchange reserve has an impact on GDP. GDP is also
related to investment and rate of interest on deposit. Narrow money and broad money
both have significant relationship to GDP and high powered money. Exchange rate is
related to GDP. The study observes that Rahman and Shilpis (1996) findings are not
fully applicable.
We obtained mixed results of the structural changes. This implies that financial reform
measures have some positive impact on the domestic economy. However, the economy
still needs more changes. Momen (1992) observes that IMF policy prescriptions for
less-developed economies (LDEs) are not likely to be effective or relevant until LDEs
financial structures and levels of industrialization have improved. This is supported by
our results. The study has found that real sector is largely dependent on GDP.
Other factors such as rate of interest on deposit, investment, consumption also have an
impact on the real sector of the country. We observed that money supply depends
directly on high-powered money and GDP; where as the external sector depends on
exchange rate and foreign exchange reserve. When we test multi-flow effect through
simultaneous equations using instrumental variables, we observed that GDP is the key
factor in the economy and is directly related to the consumption and investment
78
References
Ali, MM 2001, Determinants of Supply of and Demand for Money: A case study of
Bangladesh, Student Ways, Dhaka.
Ali , MM and Islam, AM 2011, Factors Affecting Money Supply in Bangladesh: An
Empirical Analysis, AIUB Journal of Business and Economics, Volume 10,
Number 1.
Channing, A, Paul, D, Marzia, F, Sajjad, Z, El-said, Moataz, & Christen, L 2002,
Opportunities and Challenges in Agriculture and Garments: A General Equilibrium
81
82
83