Financial Development and Poverty in Pakistan: Causality Analysis

Abstract

The literature on financial development and poverty reduction is extensive. Most of the studies are cross-country studies questioned on the basis of inability to eliminate country specific effects. This study examined the role of financial development in poverty reduction in Pakistan. The paper tested a causal process linking financial development and poverty reduction through Johansen cointegration and Wald test. The empirical results indicate the neither bi-directional nor uni-directional causality exist between financial development and poverty. The financial development in Pakistan has not caused poverty reduction expressing the imperfections in financial market.