Effects of Financial Structure and Financial Development on Economic Growth: A Case Study of Pakistan

Abstract

The object behind this study is to explore the long run association between economic growth and financial structure in Pakistan context. For this purpose we have used the data from the period of 1975 to 2008, and applied Johansen cointegration technique to find out the long run association among the selected variables. Weighted sum of structure activity and structure size of the financial sector is used as a proxy of financial structure. The study finds that the proxy of financial structure is positively correlated with economic growth. The result also pointed out that the channel of transmission mechanism of financial development to growth is efficient to the financial sector not the volume of investment.

Keywords: Financial development, financial structure, Economic growth, Cointegration.

JEL Classification: G2, O4, C4