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Financial Sector, Democracy and Economic Growth: A Panel Data Analysis

Author

Listed:
  • Muhammad Ishtiaq

    (Assistant Director, Employees’ Old-Age Benefits Institution, Government of Pakistan)

  • Muhammad Tariq Majeed

    (Assistant Professor, Quaid-i-Azam University, Islamabad)

  • Muhammad Sohail

    (Lecturer, National University of Modern Languages, Islamabad)

Abstract

Economic growth depends on many factors like the traditional factors of capital, labour and technological advancement and the somewhat novel factors of financial development and the nature of political regime. The relationship between the nature of political structure and economic growth is quite complicated. There may be direct and indirect impacts of the nature of political set up on economic growth. However, these channels remain un-explored to larger extent. The present study is conducted to analyse economic growth under democracy and dictatorship for a considerably larger set of countries from 1974 to 2013. The indirect impact of democracy on economic growth is analysed through an unexplored channel of financial sector performance, which is expected to be sensitive to regime type. The direct impact of democracy is found to be positively significant on economic growth. Likewise, direct impact of financial sector performance on economic growth is also found to be positive and significant. However, democracy had negative indirect impact on economic growth through financial sector but the magnitude of this indirect negative impact is minute enough to be ignored as compared to large individual direct effects of democracy and financial sector.

Suggested Citation

  • Muhammad Ishtiaq & Muhammad Tariq Majeed & Muhammad Sohail, 2016. "Financial Sector, Democracy and Economic Growth: A Panel Data Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 437-453.
  • Handle: RePEc:pid:journl:v:55:y:2016:i:4:p:437-453
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic Growth; Democracy; Dictatorship; Financial Sector Performance;

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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