Effect of Financial Development and Foreign Direct Investments on Economic Growth in SAARC Countries: A Panel ARDL Approach

Abstract

This paper explores the impact of financial development and foreign inflows on economic growth in the following SAARC nations: Bangladesh, Bhutan, India, Maldives, Nepal,akistan, and Sri Lanka from 2006 to 2019. The econometric tool used is the Autoregressive istributed Lag Model (ARDL) in panel settings and Pedroni Cointegration test to observe the connection between financial development, foreign influx, and economic growth. Findings from the Pedroni panel cointegration test showed that the variables are cointegrated in the long run. Pooled Mean Group (PMG) estimates suggested that broad money positively affects economic growth while gross savings have an undesirable influence on economic growth. However, the influence of domestic credit was negative but insignificant. Further, the influence of external influx on output growth is found to be adverse. The findings suggested that the economic policies of these countries should be defined by considering the financial sector of these countries.