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Financial Development and Economic Growth: The Case of Pakistan

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  • Khan, Arshad
  • Qayyum, Abdul
  • Sheikh, Saeed

Abstract

This paper has examined the empirical relationship between financial development and economic growth in Pakistan over the period 1971–2004. The results show that, in the long run financial depth and real interest exerted positive impact on economic growth. The share of investment is although positively correlated to real income, but remained insignificant. Furthermore, in the short run economic growth is positively and significantly affected by changes in the share of investment. Moreover, changes in real interest rate exerted positive (negative) impact on growth. However, the response of real interest rate is very small in the short run. The feed back coefficient is negative and significant, suggesting about 0.06 percent disequilibrium in the previous period is corrected in the current year. We find a stable long run relationship between economic growth and financial depth. Unlike Ireland (1994) and Demetriades and Hussein (1996), our findings are consistent with the view that economic growth is an outcome of the financial development.

Suggested Citation

  • Khan, Arshad & Qayyum, Abdul & Sheikh, Saeed, 2005. "Financial Development and Economic Growth: The Case of Pakistan," MPRA Paper 2145, University Library of Munich, Germany, revised 2005.
    • Handle: RePEc:pra:mprapa:2145
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    More about this item

    Keywords

    Financial development; Economic growth; Pakistan;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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