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An Investigation of the Effectiveness of Financial Development in Pakistan

  • Muhammad Tahir

    ()

    (Government College of Commerce and Economics, Karachi.)

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    This study attempts to discern the relationship between economic and financial development in Pakistan for the period 1973 - 2006. Vector error-correction modeling is used toidentify the causality between economic and financial development and the exogeneity of the variable(s) in the model. These error correction terms have been derived from Johansen’s multivariate cointegrating procedure. Results indicate that, in the long run, economic development causes financial development. Furthermore, the real output variable is found to beexogenous. Thus, financial development is seen to be ineffective in terms of economic development determination in Pakistan.

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    File URL: http://121.52.153.179/JOURNAL/vol13-no2/2%20M.Tahir_Finanl_Devp_%28ed_by_TTC%29.pdf
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    Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

    Volume (Year): 13 (2008)
    Issue (Month): 2 (Jul-Dec)
    Pages: 27-44

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    Handle: RePEc:lje:journl:v:13:y:2008:i:2:p:27-44
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    1. César Calderón & Lin Liu, 2002. "The Direction of Causality Between Financial Development and Economic Growth," Working Papers Central Bank of Chile 184, Central Bank of Chile.
    2. Philip Arestis & Panicos O. Demetriades & Bassam Fattouh & Kostas Mouratidis, 2002. "The Impact of Financial Liberalisation Policies on Financial Development Evidence from Developing Economies," Discussion Papers in Economics 02/1, Department of Economics, University of Leicester.
    3. 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.
    4. Ang, James B. & McKibbin, Warwick J., 2007. "Financial liberalization, financial sector development and growth: Evidence from Malaysia," Journal of Development Economics, Elsevier, vol. 84(1), pages 215-233, September.
    5. Roger Atindehou & Jean Pierre Gueyie & Edoh Kossi Amenounve, 2005. "Financial intermediation and economic growth: evidence from Western Africa," Applied Financial Economics, Taylor & Francis Journals, vol. 15(11), pages 777-790.
    6. Chien-Hsun Chen, 2002. "Interest rates, savings and income in the Chinese economy," Journal of Economic Studies, Emerald Group Publishing, vol. 29(1), pages 59-74, January.
    7. Shandre M. Thangavelu & Ang Beng Jiunn & James, 2004. "Financial development and economic growth in Australia: An empirical analysis," Empirical Economics, Springer, vol. 29(2), pages 247-260, 05.
    8. Min Shrestha & Khorshed Chowdhury, 2007. "Testing financial liberalization hypothesis with ARDL modelling approach," Applied Financial Economics, Taylor & Francis Journals, vol. 17(18), pages 1529-1540.
    9. Christopoulos, Dimitris K. & Tsionas, Efthymios G., 2004. "Financial development and economic growth: evidence from panel unit root and cointegration tests," Journal of Development Economics, Elsevier, vol. 73(1), pages 55-74, February.
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