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Sensitivity Analysis of Domestic Credit to Private Sector in Pakistan: A Variable Replacement Approach Application with Con-integration

  • Mondher bellalah
  • SYED ALAMDAR ALI
  • Omar Masood

    ()

    (THEMA, Universite de Cergy-Pontoise
    Superior University, Lahore, Pakistan
    Royal Business School, University of East London)

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    This study examines the short and long run relationship between Domestic Credit to Private Sector (DCPS) and its selected determinants namely, Domestic Credit to Public Sector, Gross Domestic Savings, Gross Domestic Product, Industrial Value Addition, Money Supply (M2), and the Total Volume of Trade in Pakistan over the period from 1980 to 2009. The relationship is determined using Johansen and Juselius’s framework and NLS and ARM based Error Correction Model to complete the long run and short run relationship analysis. We have conducted Variable replacement based sensitivity analysis of our model by examining two sets of exogenous variables and found that DCPS has no relationship with Economic Growth in Pakistan so far. The implications that we derive from this study is that in Pakistan the Development of Financial Sector is not making any contribution to the Economic Development. Further due to heavy Government Borrowings for non development Expenditures the lending actions of the Banks are becoming oligopolistic in nature, which is hindering the conventional flow of financing to private sector for economic development. Therefore, the monetary authority in Pakistan should adopt steeper target oriented policies for Financial Sector to extend credit for Economic Development.

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    File URL: http://www.u-cergy.fr/thema/repec/2013-17.pdf
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    Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2013-17.

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    Date of creation: 2013
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    Handle: RePEc:ema:worpap:2013-17
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