Kletzer and Bardhan (1987) argue that countries with a relatively well-developed financial sector have a comparative advantage in industries that rely on external finance. Beck (2002) and Fanelli and Medhora (2002) find that well-developed financial sector translates into a comparative advantage in the production of manufactured goods. There has been no attempt so far to explore the relationship between the financial development and international trade competitiveness in the case of Pakistan. We construct Balassa's Revealed Comparative Advantage (RCA) index for textile sector of Pakistan. Using ratio of credit extended to the textile sector to the total non-government credit of the banking system (Textile Credit Share [TCS]) as proxy for external finance, we estimate long-run relationship and Error Correction Mechanisms (ECM) between RCA index and TCS while controlling for other determinants of the international trade competitiveness of textile sector of Pakistan. In line with the findings of Beck (2002) and Fanelli and Medhora (2002), our results suggest that recourse to external finance has a strong positive impact on the country's textile sector competitiveness both in the short and the long run, even when we control for traditional determinants of competitiveness.

Based upon the indicators of market structure, this paper tests the relevance of Structure-Conduct-Performance (SCP), Relative Market Power (RMP), and the Efficient Structure (ES) paradigms for banking industry of Pakistan. We use a (balanced) panel data from 24 commercial banks of Pakistan from the year 1996 to 2015. Descriptive statistics and the formal tests suggest that: (a) there is a weak association between the indicators of market structure and banks' performance in case of Pakistan; (b) the empirical evaluation results do not provide meaningful support to SCP or RMP paradigms; and (c) the ES paradigm is more relevant in case of Pakistan. At policy level, the findings of this paper suggest that the focus of policymakers should be to improve the efficiency of banking sector, as the excessive focus on indicators of market structure like concentration ratio to improve competition in the banking sector could be counterproductive.

This paper examines the empirical relationship between financial development and economic growth for high income countries. The study focuses on both indirect finance and direct finance, separately as well as jointly. Applying the methodology of Nair-Reichert and Weinhold (2001) for causality analysis in heterogeneous panel data, two sets of results are reported. First, the evidence regarding the relationship between financial development and economic growth from a contemporaneous non-dynamic fixed effects panel estimation is mixed. Negative and statistically significant estimates of the coefficient of the inflation and financial development interaction variable indicate that financial sector development may even be harmful to economic growth when inflation is rising. Second, in contrast with the recent evidence of Beck and Levine (2003), heterogeneous panel causality analysis applied on a refined model indicates that there is no definite evidence that finance spurs economic growth or growth spurs finance. Most of our findings are in line with the Lucas (1988) view that the importance of financial matters is overstressed. The only exception is the case of activity in stock markets where our result supports the Robinson (1952) view that finance follows enterprise.

Existing measures of core inflation ignore a part of ‘should be’ the core inflation. Exclusion based measures ‘exclude’ a part of persistent inflation inherently existing in the excluded part whereas filter based measures ‘filter-out’ the cyclical part also rather than the irregular component only. This study proposes a new idea to define and measure core inflation – noise free inflation or denoised inflation. As against considering only trend to define core inflation, this study proposes using cyclical component also to be part of core inflation. If core inflation is to be useful, for monetary policy making, as an indicator of underlying inflation, it has to include demand related component of inflation associated with current economic cycle. By using wavelet analysis approach to decompose seasonally adjusted price index into noise, cyclical component and trend, we estimate a denoised inflation series for Pakistan for the period July 1992 to June 2017. Since denoised inflation passes ‘statistical’ as well as ‘theoretical’ tests necessary for a series to be core inflation, we think it can be used as a new core inflation measure for Pakistan. This can also be estimated and tested for any country.

In business-cycle research, smoothing data is an essential first step to evaluate the extent to which model-generated moments stand up to their empirical counterparts. We put to test McDermott's (1997) modified version of Hodrick and Prescott's (1997) smoothing filter. On the one hand, our simulations suggest that relative to other filters, the modified HP-filter replicates better artificially generated series with known properties. On the other hand, using true data we find that autoregressive properties of smoothed series are not affected by the choice of smoothing HP filters, but the same does not hold when it comes to multivariate analysis. The later result is especially strong for annual data. We report results for a large set of countries.