Analysis of Financial Development and Economic Growth in Pakistan

Journal of Basic and Applied Scientific Research, 4(5), pp. 122-130, 2014

9 Pages Posted: 18 May 2014

See all articles by Sharafat Ali

Sharafat Ali

Government Graduate College Kot Sultan - Department of Economics

Hamid Waqas

Mohammad Ali Jinnah University (MAJU)

Muhammad Asghar

Bahauddin Zakariya University

Muhammad Mustafa

Government College of Commerce Layyah

Raheel Kalroo

Bahauddin Zakariya University Multan - Layyah Campus

Date Written: May 16, 2014

Abstract

The study is focused on the analysis of financial development and growth in Pakistan economy for the period of 1972-2011. Cointegration techniques and Granger causality test based on the block exogeneity (Wald test) has been applied for the analysis. The cointegration test confirmed the long run association among the inflation, credit to private sector, deposits, foreign direct investment, domestic savings and economic growth. The present study supports the “supply-leading” hypothesis in Pakistan economy. Granger causality test results show that there is bidirectional causality between inflation and growth, deposits and growth, and savings and growth. Furthermore, unidirectional causality is running from foreign direct investment to growth. The coefficient of the error correction has the correct sign and is statistically significant. The study also draws some conclusion and suggests some policy implications for the establishment of robust financial sector and setting up a strong growth trajectory of the economy.

Keywords: Finance, Economic Growth, inflation, Credit, Deposits, Foreign Direct Investment, Savings, Time Series, Cointegration, Causality, Pakistan

JEL Classification: C32, G21, O4, O16, P44

Suggested Citation

Ali, Sharafat and Waqas, Hamid and Asghar, Muhammad and Mustafa, Muhammad and Kalroo, Raheel, Analysis of Financial Development and Economic Growth in Pakistan (May 16, 2014). Journal of Basic and Applied Scientific Research, 4(5), pp. 122-130, 2014, Available at SSRN: https://ssrn.com/abstract=2437937

Sharafat Ali (Contact Author)

Government Graduate College Kot Sultan - Department of Economics ( email )

Kot Sultan
Layyah, Punjab 31650
Pakistan

Hamid Waqas

Mohammad Ali Jinnah University (MAJU) ( email )

Islamabad Expressway
Kahuta Road, Zone-V
Islamabad, 44000
Pakistan

Muhammad Asghar

Bahauddin Zakariya University ( email )

Bosan Road
Multan, PA Punjab 60800
Pakistan

Muhammad Mustafa

Government College of Commerce Layyah ( email )

Government College of Commerce Layyah
Layyah, PA Punjab 31200
Pakistan

Raheel Kalroo

Bahauddin Zakariya University Multan - Layyah Campus ( email )

Layyah Campus, Bahauddin Zakariya University Mult
Layyah, Punjab 31200
Pakistan

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