Abstract:
This study empirically investigates the impact of financial development and trade openness on the economic growth of Bangladesh from 1975 to 2023. The central research question asks whether a stable long-run relationship exists between these variables and to what extent they have fueled the country’s economic expansion. Utilizing time series data sourced from the Bangladesh Bank and the Bangladesh Bureau of Statistics, the study employs the Johansen cointegration technique and error correction models to analyze the relationships. The findings confirm a significant positive long-run cointegrating relationship. Economic growth, proxied by real GDP per capita, is positively influenced by both financial development—measured by domestic credit to the private sector as a percentage of GDP—and trade openness, measured by the trade to-GDP ratio. Specifically, a 1% increase in financial development and trade openness leads to a 0.27% and 0.56% increase in economic growth, respectively, confirming their roles as pivotal engines of growth. However, this positive relationship is juxtaposed with significant contemporary structural challenges. These include a fragile banking sector plagued by high levels of non performing loans (NPLs), a persistent trade deficit, and external pressures from impending Least Developed Country (LDC) graduation and global instability. The study concludes that while financial development and trade openness have been fundamental to historical growth, their sustainability requires deep financial sector reforms, aggressive export diversification, and prudent macroeconomic management to navigate future global complexities.

Keywords:
Bangladesh, Financial System, Trade Openness, Economic Growth, Cointegration, LDC Graduation, Global Economy.

JEL Classifications:
F43 , O16 , G21 , F14