Nexus between Financial Development and Energy Consumption: Experience from Bangladesh

Energy can be considered as the backbone of the economy and
financial progress is the legs upon which it is standing. Bangladesh
being one of the most overpopulated country in the world has
managed to maintain an approximate 6% growth rate over the past
decade. This has been made possible through a combined effort of
providing sufficient resources to the people. This paper analyses the
relationship between two of the most important variable in sustaining
growth and development, financial development and energy
consumption in Bangladesh. Lack of study to show the relationship
between these sectors in Bangladesh had caused some restriction in
understand the sectors congruously. Domestic credit provided to the
finance sector and energy use has been used as the indicators for
financial development and energy consumption respectively in this
paper. Augmented Dickey Fuller (ADF) for unit root test have been
orchestrated in this analysis. Furthermore, ARDL cointegration test
have been performed. Finally, the granger causality has been applied
in order to accomplish the outcomes of this paper. The results showed
a bi-directional causality between the two variables taken into account.
Financial development leads to an increase in the energy use and
increasing energy consumption also led to increasing financial growth.
However, the causality ran only in the short run and no relationship in
the long run. This was the case for both direction of causality. Policy
implication for Bangladesh at the conclusion of this research paper
would be for the government to provide flexible economic policies to
encourage further investments in both financial sector and energy
sector.

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