The relationship between financial indicators and human development in Pakistan
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.
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