Himalaya Ban
Abstract
This study investigates the impact of financial structure in economic
growth of Nepal. Further, it tries to analyze the role of bank and market in the
economic growth of Nepal. The study uses annual time series data from 1960 to 2014 for bank and from
1994 to 2014 for market variables. It has developed a model to capture the interrelationships among
aggregate bank
variables like money supply growth, bank deposit growth, bank credit growth and
bank assets growth and market based variables like market capitalization growth,
stock value growth, trading turnover growth and NEPSE growth and economic
growth variables like
real gross domestic product growth, gross capital formation growth and gross
domestic savings growth. The study employs descriptive analysis, correlation
analysis, and ordinary least square analysis.
The study finds
that financial structure does have impact upon economic growth of Nepal.
Furthermore, the study finds that bank based financial structure is dominant in
Nepalese financial system and the role of capital market seems to be insignificant. It may be
either the size of market is too small to seek the relationship or it is weakly linked to real
economic activities. The study is
consistent
with the earlier findings in other countries and it has two important
implications.
First,
the policy should focus on banking sector development by enhancing its quality
and outreach
as it promotes economic growth. Second, in line with the banking sector, the
scope of capital
market should be further expanded to real economic activities to channelize its impact on growth. As far as
liberalization is concerned it has played a significant impact on economic
growth and financial development of Nepal.
Keywords: Financial Structure, Economic Growth, Money
Supply, Bank Deposit, Bank Credit, Bank Assets, Market Capitalization, NEPSE,
Market Capitalization, Gross Capital Formation, Gross Domestic Savings, Gross
Domestic Product
