Exploring the Impacts of Financial Innovation on Economic Growth in Bangladesh: Evidence from an ARDL Approach

Financial innovation is recognized as a major catalyst of long-term economic progress. The main aim of this study is to analyze the nexus between financial innovation and economic growth in Bangladesh. While financial innovation plays a crucial role, empirical studies examining its impacts on the economy, specifically in the context of Bangladesh, are scarce. This study is designed to address this existing gap. Based on time-series data covering the period from 2004 to 2023, this research employed the Autoregressive Distributed Lag (ARDL) bounds testing procedure to examine long-run cointegration among the variables. Robust findings indicate significant long-run effects of financial innovation, measured by the number of automated teller machines, on economic growth. The short-run analysis reveals temporary adjustment effects following financial innovation, while the error-correction mechanism confirms convergence toward the long-run equilibrium after short-run shocks. Granger causality analysis showed a strong unidirectional causality from ATM development to GDP growth. The empirical findings of this study will be of greater importance to developing nations like Bangladesh because they will encourage bank management and policymakers to pursue policies that promote financial innovations. This study enriches the empirical literature by confirming or disproving the findings of previous studies.