An Investigation of the Effectiveness of Financial Development in Pakistan

Tahir, Muhammad

doi:10.35536/lje.2008.v13.i2.a2

Cited by 15 publications

(19 citation statements)

References 17 publications

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“…With respect to Pakistan, the majority of studies (for instance, Khan, Qayyum, & Sheikh, 2005;Tahir, 2008;Khan, 2008;Jalil & Ma, 2008;Rehman & Cheema, 2013;Naveed & Mahmood, 2019) used linear modeling technique to investigate finance-growth nexus. However, these studies ignored the asymmetric relationship, while investigating finance-growth nexus.…”

Section: Model Data and Methodologymentioning

confidence: 99%

How Does Financial Development Impact Economic Growth in Pakistan?: New Evidence from Threshold Model

Tariq¹,

Khan²,

Rahman³

2020

JAFEB

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This study examines the nonlinear relationship between financial development and economic growth in Pakistan using the threshold regression model for the period 1980-2017. We also employed quantile regression with 0.25, 0.50, and 0.75 quantiles of conditional distribution. The quantile regression is based on minimizing of sum of squared residuals. The result indicates that economic growth responds positively to financial development when the level of financial development surpasses the threshold value of 0.151. However, when financial development lies below the threshold value (that is, 0.151), its impact on economic growth is negative. Thus, when financial development of Pakistan surpasses the threshold level, it contributes more towards economic growth since greater level of financial development contributes more to boosts economic growth. This finding reveals that economic growth reacts differently to financial development, and the relationship between financial development and economic growth is U-shaped in Pakistan. Among the other variables, physical capital, labor force, and government expenditure exert a positive effect on economic growth. Furthermore, inflation rate and trade openness have an insignificant impact on economic growth. The results of quantile regression also confirm the non-linear relationship between financial development and economic growth in Pakistan. The finding of this study suggests revamping of financial sector policies in Pakistan.

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Section: Model Data and Methodologymentioning

confidence: 99%

How Does Financial Development Impact Economic Growth in Pakistan?: New Evidence from Threshold Model

Tariq¹,

Khan²,

Rahman³

2020

JAFEB

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“…However this causal relationship is strong in case of developing countries as compare to advance countries. Tahir (2008) did study in Pakistan and concluded that there is unidirectional causality running from economic development to financial development both in short run and long run. Real per capita GDP was used as a proxy of economic development while ratio of domestic credit to GDP, total capital formation to GDP, weighted average savings interest rate minus current GDP deflator and GDP deflator were used for financial development.…”

Section: Studies Related To Bank's Deposits and Economic Growthmentioning

confidence: 99%

Causality between bank’s major activities and economic growth: evidences from Pakistan

Mushtaq

2016

Financ Innov

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Background: Banking is an important sector of Pakistan's economy. It is general consideration that bank's major activities saving and lending have positive impact on economic growth. So the aim of this study is to investigate this consideration and also investigate that either growth led deposits and credits, or deposit and credits led growth means the purpose of this study is to investigate the direction of this relationship. Methods: Johansen test of Co-integration and Granger Causality is employed by using time series data of Pakistan from 1961 to 2013. Results: The results show that two major activities of banking sector that are saving and lending don't have any long run or short run causality towards economic growth so the general consideration of positive impact of these activities proved wrong in case of Pakistan. However there is unidirectional causality running from GDP growth to credit provided by banking sector which shows that economic prosperity or economic growth will have a major impact on lending activities of banks meaning that demand following hypothesis is true for Pakistan in case of GDP and Bank's credit or we can say that growth led Bank's credit in Pakistan. Conclusions: Hence Government and central bank should make policies by keeping this fact in consideration that bank's two major activities that are saving and lending does not have impact on GDP growth. There might be other factors which influence economic growth of Pakistan more than banking sector these activities, which can be bank's profitability, human resource, technology, infrastructure and other sectors of the economy. However GDP growth affects bank's lending activities so during high economic growth year central bank and private bank's management should introduce easy loans for businesses and industries and during poor economic growth years personal loan's new schemes should be introduce by banks.

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“…With respect to Pakistan majority of empirical studies (e.g., Jalil & Ma, 2008;Khan et al, 2005;Mahmood, 2013;Naveed & Mahmood, 2019;Tahir, 2008) have used linear approach to detect the relationship between financial development and economic growth. However, inferences based on the linear relationship become defunct after the structural changes in the form of financial sector reforms initiated in Pakistan in the early 1990s.…”

Section: Introductionmentioning

confidence: 99%

Does Financial Sector Promote Economic Growth in Pakistan? Empirical Evidences From Markov Switching Model

2020

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This study investigates the financial development–economic growth relationship in Pakistan over the period 1975–2017 using the Markov Switching methodology. The financial development index has been constructed using the principal component analysis. Unexpectedly, the empirical result shows that financial development contributing negatively to economic growth in the high and the low economic growth regimes in Pakistan. Moreover, the results indicate that labor force retards economic growth with a higher magnitude. A significant positive effect of gross fixed capital formation on economic growth is also observed. The results reveal that policymakers may revisit the financial development policies so that the financial sector may contribute positively to economic growth process in Pakistan. In this respect, more steps are needed to further liberalize the financial sector to enhance economic growth in Pakistan.

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An Investigation of the Effectiveness of Financial Development in Pakistan

Cited by 15 publications

References 17 publications

How Does Financial Development Impact Economic Growth in Pakistan?: New Evidence from Threshold Model

How Does Financial Development Impact Economic Growth in Pakistan?: New Evidence from Threshold Model

Causality between bank’s major activities and economic growth: evidences from Pakistan

Does Financial Sector Promote Economic Growth in Pakistan? Empirical Evidences From Markov Switching Model

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