Financial Innovation and Economic Growth: A Casual Analysis

The main objective of this research is to assess dose financial innovation causing economic growth in Bangladesh by using Vector Error Correction Model (VECM). Study results reveal that financial innovation has a positive effect on economic growth in the short run and a long run on Bangladesh economy. Although the effects vary with the variable used to measure financial innovation. In addition, a test of Cointegration shows that financial innovation has long run association with economic growth. While Variance decomposition suggests that any innovation in the financial sector can cause GDP variation fluctuation in both long run and short run. It is suggested from a study that promotes financial innovation in the financial system can have both long and short run association in the economic development process and economic growth, which also can influence on innovational activities in the financial system, eventually support of financial development.