Omar K. M. R. Bashar

Liberalization and Growth: An Econometric Study of Bangladesh

Bangladesh adopted a liberal economic regime, particularly in the areas of trade, finance, and capital account, since mid-1980s. This study seeks to evaluate the impact of liberalization on the country’s economic growth by analyzing the 1974-2002 data with the help of cointegration and error correction methods. The empirical results suggest that long-run economic growth in Bangladesh is largely explained by physical capital and real interest rate and growth remains unaffected by short-term changes in labor force and secondary enrollment ratio. While financial liberalization has had significant negative impacts on economic growth implying that financial reforms failed to attract new investment due to adverse investment climate, the effects of trade and capital account liberalizations were rather insignificant, possibly due to weak supply response and lack of credibility of such reform programs. Bangladesh will not reap the full benefits of any comprehensive liberalization measures unless it can improve infrastructure and quality of governance, the paper argues.

Islamic Finance: Growth and Prospects in Singapore

Islamic finance has been growing rapidly since its launch in the 1970s. The major market for this industry is typically the Middle East and it is gaining popularity in the UK, USA and Southeast Asia. Malaysia is the leading Islamic finance industry in Southeast Asia while its neighbor Singapore is relatively a new market player. Singapore revised its regulatory framework and tax structure and gradually introduced various Shariah-compliant financial products in the last couple of years. This paper argues that despite having small domestic market and competition from Malaysia, Singapore can still position itself in a niche market in the region. Through its strategy of integrated financial and economic development, Singapore can create new opportunities for Islamic finance and related financial products in the region.

Religion and Development: Are They Complementary?

Given that religion drives people’s behavior and actions in a more productive direction, it is not possible to separate religion from development. After a meticulous review of theory and empirical literature, the paper concludes that the relationship between religion and development is likely to be complementary as long as religious beliefs and practices promote ‘moderation’ rather than ‘extremes’. A peaceful co-existence of various religious groups (or sects) within a country and nations with multiple religious affiliations within the global community at large remains the essential prerequisite for growth and prosperity in today’s highly interconnected world, argued in the paper.

Time Varying Correlation Between Islamic Equity and Commodity Returns: Implications for Portfolio Diversification

This paper aims at investigating the time varying relationship between Islamic equity and commodity returns in order to examine how combination of Islamic equities and commodities contribute to the benefits of portfolio investors and managers. In order to investigate this relationship, we employed multivariate GARCH method on return series of five different commodity groups (energy, precious metals, agricultural, non-ferrous metals and softs group), Dow Jones spot commodity index as a proxy of an aggregate commodity market and Dow Jones Islamic index over the period January 3, 2001 - March 28, 2013. Our findings show that correlations between commodity and Islamic stock markets’ returns change in different time periods and these two markets moved very closely during 2008 financial crisis in particular. Besides, volatility of returns in both markets reached at their peaks during the 2008 crisis period. We also show that despite sharing some common features, commodities cannot be considered as a homogeneous asset class: a speculation phenomenon is for instance, highlighted for energy sector comprising oil, while the safe-haven role of gold is evidenced, which constitutes a part of precious metal sector.

Is Domestic Stock Price Cointegrated with Exchange Rate and Foreign Stock Price?: Evidence from Malaysia

The growth of the financial sector of an economy such as, the stock market is usually found to be highly correlated with the growth of the real sector of an economy. In this study, we make an attempt to investigate whether there is any significant relationship between the stock prices, macroeconomic variables and foreign stock prices in an economy. Using the Malaysian quarterly data from 1991–2010 and the time series techniques such as, cointegration, long run structural modeling, vector error correction, variance decompositions, impulse response functions, and persistence profile approaches, we evidence a significant statistical relationship existing between the Malaysian stock prices, exchange rate and foreign stock prices with the exchange rate being the most leading variable. We also found evidence of negative impact of the Asian Financial Crisis on Malaysian stock prices in the short run. The results appear to be plausible and contain strong policy implications.

Causality between stock and foreign exchange markets in Bangladesh

Purpose - The purpose of this paper is to uncover the direction of causality between foreign exchange market and stock market in Bangladesh, where financial markets are yet in their early development stage. Design/methodology/approach - The paper employs the Granger causality tests using monthly data spanning over two decades. In order to study possible existence of causality in the data, sub-samples are constructed in addition to the full sample. Findings - The overall results indicate absence of any causality running between foreign exchange market and stock market in the full sample and in the sub-sample created around the stock market crash. Originality/value - This study would be the first of its kind using Granger causality approach to test whether change in exchange rates lead to changes in the stock market in Bangladesh, and vice-versa. The paper also offers some implications of the findings which could be of significant value to policy makers.

Relationship between Commodity Prices and Exchange Rate in Light of Global Financial Crisis: Evidence from Australia

This study seeks to identify major factors behind recent fluctuations in Australian dollar. Using quarterly data for over 30 years and cointegration and error correction models, we found that in the long run exchange rate is determined by commodity prices, interest rate and other factors such as Global Financial Crisis. We found two-way Granger causality between exchange rate and commodity prices, but one-way Granger causality from Global Financial Crisis to commodity prices. The implications of our findings is that by providing substantial incentives to Australian producers, the policy makers in Australia can ensure competitive commodity prices and exchange rate. Portfolio managers could also benefit from our findings knowing the mechanism of Global Financial Crisis impacting Australian dollar.

The Impact Of Economic Reforms On Growth: A Case Study Of Bangladesh

This study makes a brief assessment of the consequences of economic reforms that included a series of liberalization measures on Bangladeshs growth process by analyzing the 1974-2007 data with the help of cointegration, error correction, and Granger causality tests. The results suggest that long-run economic growth in Bangladesh is largely explained by investments in both physical and human capital, trade openness, and financial as well as capital account liberalization. While the causality runs in both ways between capital account liberalization and economic growth, it runs only in one direction from physical capital and financial liberalization to economic growth in the short-run. Interestingly, growth is not affected by trade openness in the short-run. While trade liberalization and capital account liberalization have had significant positive impacts on economic growth in the long-run, the effects of financial liberalization were found to be significantly negative. This emphasizes the need for ensuring real sector development as a prerequisite for the success of financial liberalization.

Does globalization create a ‘level playing field’ through outsourcing and brain drain in the global economy?

Rapid globalization driven by the development needs of transition economies, economic reform in developing countries, and unprecedented productivity growth owing to lower unit labor cost, Information and Communication Technology (ICT) revolution, and international movement of labor has posed a challenge for maintaining a sustainable economic growth worldwide. Using qualitative analysis based on data from various secondary sources, we note that both outsourcing and brain drain have intensified over the years as more and more countries are now embracing globalization as a strategy for higher economic growth and development. While the benefits of globalization can differ across countries, it seems that outsourcing and brain drain can bring into play some offsetting forces that are likely to bridge the gap between advanced and developing countries by creating a ‘level playing field’ in the global economy. While the developing and emerging economies are losing skilled labor through ‘brain drain’ to the advanced nations, they are gaining remittance earnings from those nations. At the same time, outsourcing from the advanced countries has created new employment and other opportunities in developing and emerging markets. Although the final impact of outsourcing is debatable, it is very likely that companies will intensify such activities in future due to strong evidences in support of significant cost savings. The outflow of skilled manpower, popularly called brain drain, from developing countries is also likely to increase due to growing demand for ‘replacement migration’ from advanced countries. Increasing job gains from outsourcing and the associated benefits on the economies of developing countries are likely to cancel out the perceived negative impact of brain drain, argued in this paper. The implication is that developed countries should ideally target the relatively poorer countries in their plan for outsourcing, because they are still deprived of the benefits of job creation, though these countries are losing their high-skilled manpower through brain drain.

Economic policy implications for socio-economic development in a fast-growing economy: the case of Malaysia

We seek to study the link between economic policy changes and socio-economic development in Malaysia that has shown impressive growth over the years. The country has experienced significant policy changes since independence in 1957, but the main focus of promoting the native Malay (Bumiputera) interest remains. Currently Malaysia is classified by the World Bank as an ‘upper middle-income’ country and it aims at becoming a highincome, inclusive and sustainable economy as part of its Vision 2020. While the New Economic Policy, the New Development Policy, the National Vision Policy and the New Economic Model – all driving the country towards its Vision 2020, promoting Bumiputera interests directly or indirectly in today’s competitive world might be seen as an obstacle towards achieving the Vision, argued in the paper.