1 Exploring the linkage between financial development and economic growth: the ARDL bounds testing approach Mohammed Abul Kashem Email:kashem24bb@gmail.com and Mohammad Mafizur Rahman 1 Email: mafiz.rahman@usq.edu.au Abstract This study investigates the cointegration, short and long run dynamics and causal links between financial development and economic growth in Bangladesh for the period 1973 to 2015. We applied the Autoregressive Distributed Lag (ARDL) Bounds Testing approach and the Granger causality test. The ARDL bounds tests and other cross-checking test confirmed the long run cointegration between economic growth and financial development indicators in Bangladesh. The two financial development indicators, growth in broad money to gross domestic product (GDP) ratio and growth in total deposit liabilities to GDP ratio appeared to have time variant impact on economic growth: the former having significant positive impact in the short- run but negative impact in the long- run, while the latter has significant negative impact in the short- run but positive impact in the long- run. The Granger causality analysis indicated a bidirectional, co-evolutionary process between financial development and economic growth. Keywords: Financial development; economic growth; ARDL model; Bangladesh. JEL Codes: O11; O40; C22. 1.0 Introduction Since the independence in 1971, Bangladesh has gone through waves of policy reforms, resulting in a more liberalized and capitalist outlook. The private sector was made “the engine of growth” and the country entered into a Financial Sector Reform Program (FSRP) from the early1990s. The major reforms include: denationalization and privatization, financial liberalization, encouraging foreign direct investment, etc. (Islam, M. F., 1999). The efficacy of these reform programs are better reflected in the economic growth and financial development situation of the country. Researchers found the theoretical and empirical evidence of correlation, cointegration and causality between financial development and economic growth. However, most studies advocated for financial liberalization and the results based on single country study of correlation, cointegration and causality between financial development and economic growth are fairly mixed and dependent mainly on country specific economic fundamentals and data. 1 Corresponding author