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Economic development and banking sector growth in Pakistan

Author

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  • Ahsin Shahid
  • Hibba Saeed
  • S. Muhammad Ali Tirmizi

Abstract

This study empirically analyzes the financial and economic development in Pakistan with reference to banking sector. Time series data of Pakistani banks from 1980 to 2012 have been employed. Statistical analysis including Augmented Dickey-Fuller, Johansen co-integration, ordinary least square (OLS) regression, and Granger causality tests have been applied on the data relating four indicators (i.e. Broad Money (M 2 ); Domestic Credit to Private Sector; Domestic Credit to by Banking Sector; and Banks Deposit Liabilities (BDL) - all taken as percentage of gross domestic product] which measured the level of financial development (FD) contributed by banking sector. The results revealed that a positive and statistically significant relationship exists between FD and economic growth. However, BDL are positive but statistically insignificant, and M 2 is negative and statistically insignificant. Moreover, unidirectional and bidirectional causality have been found between the variables. Hence, there is a dire need of sound banking sector to ensure long-term sustainable economic growth that could be achieved if the Government takes concrete measures to reduce all kinds of deficits and borrowings that are the major causes of crowding-out private investment.

Suggested Citation

  • Ahsin Shahid & Hibba Saeed & S. Muhammad Ali Tirmizi, 2015. "Economic development and banking sector growth in Pakistan," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(3), pages 121-135, July.
    • Handle: RePEc:taf:jsustf:v:5:y:2015:i:3:p:121-135
    DOI: 10.1080/20430795.2015.1063976
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    Cited by:

    1. Doukouré Charles Fe & Jeffrey Kouton, 2023. "The Banking Sector, the Engine of Inclusive Growth in WAEMU Countries: Decoy or Glimmer?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(1), pages 472-502, March.
    2. Maria Carolina Rezende de Carvalho Ferreira & Vinicius Amorim Sobreiro & Herbert Kimura & Flavio Luiz de Moraes Barboza, 2016. "A systematic review of literature about finance and sustainability," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 6(2), pages 112-147, April.
    3. Wasim Ahmad & Sanjay Sehgal, 2018. "Business Cycle and Financial Cycle Interdependence and the Rising Role of China in SAARC," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(2), pages 337-362, June.
    4. Ammar Ahmed & Faiz Muhammad Khuwaja & Noor Ahmed Brohi & Ismail bin Lebai Othman, 2018. "Organizational Factors and Organizational Performance: A Resource-Based view and Social Exchange Theory Viewpoint," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 8(3), pages 579-599, March.
    5. Ammar Ahmed & Ismail bin Lebai Othman, 2017. "The Impact of Strategic Attributes on Organizational Performance in Pakistan Banking Sector: A Review and Suggestions for Future Research," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(8), pages 371-387, August.

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