Impact of Financial Deepening on Economic Growth in Nepal

Authors:
  • Yadav Mani Upadhyaya, Assistant Professor of Economics (PhD in Economics) Tribhuvan University, Saraswati Multiple Campus, Kathmandu, Nepal.
  • Khom Raj Kharel, Associate Professor of Economics (PhD in Economics), Tribhuvan University, Saraswati Multiple Campus, Kathmandu, Nepal.
  • Omkar Poudel, Assistant Professor of Economics, Birendra Multiple Campus, Tribhuvan University, Kathmandu, Nepal.
  • Pradeep Acharya, Account Specialist at NOWCFO, MBA, Tribhuvan University, Kathmandu, Nepal.

DOI:

https://doi.org/10.58665/njiss.59

Keywords:

Broad money (M2), economic growth, financial deepening, granger causality test, private sector credit (PSC), real gross domestic product (RGDP), vector autoregressive (VAR) model

Abstract

Purpose: The objective of this study is to investigate the relationship between financial deepening and economic growth in Nepal. Design/methodology/approach: The long-term and short-term dynamics among the variables are assessed using econometric techniques. Granger causality tests are applied to determine the direction of causality between private sector credit and economic growth. Findings: The findings reveal a significant long-term equilibrium relationship among the variables. Both broad money and private sector credit have a positive impact on economic growth in Nepal. The Granger causality tests show bidirectional causality between private sector credit and real gross domestic product. Conclusions: The results highlight that both broad money and private sector credit contribute significantly to economic expansion. Implications: The robustness of the model, confirmed through diagnostic tests, underscores the critical role of financial sector policies in sustaining Nepal’s economic growth. JEL Classification: O16, O43, E44, F43, O53

Author: Yadav Mani Upadhyaya, Khom Raj Kharel, Omkar Poudel, Pradeep Acharya

Volume: 7

Issue: 1

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