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The relationship between financial indicators and human development in Pakistan

Author

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  • Zaman, Khalid
  • Izhar, Zeeshan
  • Khan, Muhammad Mushtaq
  • Ahmad, Mehboob

Abstract

Every economy requires a sophisticated and efficient financial system to prosper its development. A healthy financial system may be integral to the sound fundamentals of an economy. The objective of the study is to investigate the impact of financial indicators on human development in Pakistan by using annual data from 1975 to 2010. Data is analyzed by cointegration theory, Granger causality test and variance decomposition, etc. The results reveal that financial development indicators act as an important driver for increase in human capital in Pakistan. Results indicate that causality runs from financial indicators to human capital except credit to private sector (CPS) but not vice versa. Financial indicators are closely associated with economic growth and human development in Pakistan. Variance decomposition analysis shows that among all the financial indicators, broad money supply (M2) has exerted the largest contribution to changes in human capital.

Suggested Citation

  • Zaman, Khalid & Izhar, Zeeshan & Khan, Muhammad Mushtaq & Ahmad, Mehboob, 2012. "The relationship between financial indicators and human development in Pakistan," Economic Modelling, Elsevier, vol. 29(5), pages 1515-1523.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:1515-1523
    DOI: 10.1016/j.econmod.2012.05.013
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    14. Haruna Mohammed Aliero & Saifullahi Sani Ibrahim & Mukhtar Shuaibu, 2013. "An Empirical Investigation into the Relationship between Financial Sector Development and Unemployment in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(10), pages 1361-1370, October.
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    17. Abdulnasser Hatemi-J & Mrittika Shamsuddin, 2016. "The causal interaction between financial development and human development in Bangladesh," Applied Economics Letters, Taylor & Francis Journals, vol. 23(14), pages 995-998, September.
    18. Rudra P. Pradhan & Mak B. Arvin & Mahendhiran Nair & Sara E. Bennett, 2020. "Sustainable economic growth in the European Union: The role of ICT, venture capital, and innovation," Review of Financial Economics, John Wiley & Sons, vol. 38(1), pages 34-62, January.

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    More about this item

    Keywords

    Financial indicators; Economic growth; Human capital; Cointegration; Causality; Pakistan;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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