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Is Post-Reform Financial Development a Sufficient Condition for Economic Development? An Emerging Economy’s Experience with Liberalization

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  • Dawood Mamoon

Abstract

The paper undertakes a multivariate time series analysis and shows that repressed financial markets were not in themselves a justification for financial liberalization in Pakistan in the 1990s. The study tries to analyze the possible reasons for the failure of the financial reform process in Pakistan. This is done by first establishing the two legs of ‘McKinnon and Shaw’s transmission mechanism’, through which financial development affects real economic activity. As the next step Vector Autoregressive (VAR) analysis is employed in order to regress these two legs and then multiple causality tests are run on subsequent Vector Error Correction (VEC) equations. Such an approach not only allows to take on the critiques of McKinnon and Shaw in a debonair manner, but also enables to pinpoint the shortcomings of the reform process itself.

Suggested Citation

  • Dawood Mamoon, 2010. "Is Post-Reform Financial Development a Sufficient Condition for Economic Development? An Emerging Economy’s Experience with Liberalization," The IUP Journal of Financial Economics, IUP Publications, vol. 0(4), pages 7-36, December.
    • Handle: RePEc:icf:icfjfe:v:08:y:2010:i:3:p:7-36
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