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Financial Development and Economic Growth: The Case of Pakistan

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  • Khan, Arshad
  • Qayyum, Abdul
  • Sheikh, Saeed

Abstract

This paper has examined the empirical relationship between financial development and economic growth in Pakistan over the period 1971–2004. The results show that, in the long run financial depth and real interest exerted positive impact on economic growth. The share of investment is although positively correlated to real income, but remained insignificant. Furthermore, in the short run economic growth is positively and significantly affected by changes in the share of investment. Moreover, changes in real interest rate exerted positive (negative) impact on growth. However, the response of real interest rate is very small in the short run. The feed back coefficient is negative and significant, suggesting about 0.06 percent disequilibrium in the previous period is corrected in the current year. We find a stable long run relationship between economic growth and financial depth. Unlike Ireland (1994) and Demetriades and Hussein (1996), our findings are consistent with the view that economic growth is an outcome of the financial development.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2145.

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Date of creation: 2005
Date of revision: 2005
Publication status: Published in The Pakistan Development Review 4.44(2005): pp. 819-837
Handle: RePEc:pra:mprapa:2145

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Keywords: Financial development; Economic growth; Pakistan;

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References

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  1. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
  2. International Monetary Fund, 2004. "Financial Sector Development in the Middle East and North Africa," IMF Working Papers 04/201, International Monetary Fund.
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  4. Mohsen Bahmani-Oskooee & Raymond Chi Wing Ng, 2002. "Long-Run Demand for Money in Hong Kong: An Application of the ARDL Model," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(2), pages 147-155, August.
  5. repec:fth:wobaco:1083 is not listed on IDEAS
  6. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-99, May.
  7. Demetriades, Panicos O & Luintel, Kul B, 1996. "Financial Development, Economic Growth and Banker Sector Controls: Evidence from India," Economic Journal, Royal Economic Society, vol. 106(435), pages 359-74, March.
  8. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
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  18. Rehana Siddiqui, 2004. "Energy and Economic Growth in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(2), pages 175-200.
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Citations

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Cited by:
  1. Shahbaz, Muhammad & Islam, Faridul, 2011. "Financial development and income inequality in Pakistan: An application of ARDL approach," MPRA Paper 28222, University Library of Munich, Germany.
  2. Henna Ahsan & Zainab Iftikhar & M. Ali Kemal, 2011. "The Determinants of Food Prices: A Case Study of Pakistan," PIDE-Working Papers 2011:76, Pakistan Institute of Development Economics.
  3. Shaheen, Safana & Awan, Masood Sarwar & Waqas, Muhammad & Aslam, Muhammad Amir, 2011. "Financial Development, International Trade and Economic Growth: Empirical Evidence from Pakistan," MPRA Paper 32876, University Library of Munich, Germany.
  4. Sylviane Guillaumont Jeanneney & Kangni R. Kpodar, 2006. "Développement financier, instabilité financière et croissance économique," Économie et Prévision, Programme National Persée, vol. 174(3), pages 87-111.
  5. Khan, Muhammad Arshad & Sajid, Muhammad Zubair, 2007. "Integration of Financial Markets in SAARC Countries: Evidence Based on Uncovered Interest rate Parity Hypothesis," MPRA Paper 6751, University Library of Munich, Germany.
  6. 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.
  7. Khan, M. Arshad & Qayyum, Abdul, 2006. "Trade Liberalization, Financial Sector Reforms and Growth," MPRA Paper 2655, University Library of Munich, Germany, revised 2006.
  8. Jalil, Abdul & Feridun, Mete & Ma, Ying, 2010. "Finance-growth nexus in China revisited: New evidence from principal components and ARDL bounds tests," International Review of Economics & Finance, Elsevier, vol. 19(2), pages 189-195, April.
  9. Sylviane GUILLAUMONT JEANNENEY & Kangni KPODAR, 2004. "Développement financier, instabilité financière et croissance économique," Macroeconomics 0407004, EconWPA.
  10. Matthew McCartney, 2011. "Pakistan, Growth, Dependency, and Crisis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 71-94, September.
  11. Kumar, Ronald/R, 2011. "Role of Trade, Aid, Remittances and Financial Development in Pakistan," MPRA Paper 38871, University Library of Munich, Germany.
  12. Raza, Muhammad Wajid & Mohsin, Hasan M, 2011. "Financial liberalization and macroeconomic performance, empirical evidence from selected Asian countries," MPRA Paper 34559, University Library of Munich, Germany, revised 12 Oct 2011.
  13. Muhammad Shahbaz & Qazi Muhammad Adnan Hye & Muhammad Shahbaz Shabbir, 2013. "Does Corruption Increase Financial Development? A Time Series Analysis in Pakistan," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 1(10), pages 113-124, October.
  14. Abdul Qayyum & Muhammad Arshad Khan, 2014. "Dynamic Relationship and Volatility Spillover between the Stock Market and the Foreign Exchange Market in Pakistan: Evidence from VAR-EGARCH Modelling," PIDE-Working Papers 2014:103, Pakistan Institute of Development Economics.
  15. Najia SAQIB, 2013. "Impact of Development and Efficiency of Financial Sector on Economic Growth: Empirical Evidence from Developing Countries," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 3(3), pages 9, June.
  16. Muhammad Arshad Khan & Abdul Qayyum, 2007. "Trade Liberalisation, Financial Development and Economic Growth," PIDE-Working Papers 2007:19, Pakistan Institute of Development Economics.
  17. saleem, shahid, 2007. "Role of Islamic banks in economic development," MPRA Paper 7332, University Library of Munich, Germany.
  18. Alyson Falcucci, 2012. "La microfinance et son impact sur la pauvreté dans les pays en développement," Post-Print dumas-00759892, HAL.
  19. Nadeem Ul Haque, 2007. "Impact of Export Subsidies on Pakistan’s Exports," Trade Working Papers 22191, East Asian Bureau of Economic Research.

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