FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH IN THE CONTEXT OF NEPAL

Abstract

This dissertation investigates the relationship between financial development and economic growth in Nepal, employing a comprehensive analysis of time series data from 1975 to 2023. The study aims to understand how advancements in the financial sector influence overall economic performance in the Nepalese context, characterized by its unique economic structure and developmental challenges. This study investigates the dynamics between financial development and economic growth in Nepal using OLS regression models. The dependent variable in this study is the GDP per capita growth rate (GDPPCG). The independent variables include the annual inflation rate (I), Broad Money (M2) as a percentage of GDP, Deposit (D) as a percentage of GDP, Total Expenditure (TE) as a percentage of GDP, Gross Fixed Capital Formation (GFCF) as a percentage of GDP, and Domestic Credit to the private sector by banks (DCPS) as a percentage of GDP. The correlation analysis shows that key financial indicators like Deposits, Domestic Credit to the Private Sector, and Gross Fixed Capital Formation are positively linked to GDP per capita growth in Nepal, suggesting that increased financial activity and investment drive economic growth. However, inflation does not show a significant correlation, indicating it's not a major factor in this context. The regression analysis shows that Domestic Credit, Capital Formation, Broad Money, and Deposits positively impact GDP per capita growth in Nepal, while Inflation and Total Expenditure negatively affect it. Keywords: