Does Financial Sector Development Promote Economic Growth in Pakistan? An Empirical Analysis Using ARDL Technique

Abstract

The primary objective of this study is to empirically assess the role of financial sector development that is needed to accelerate economic growth in Pakistan. The data of concern variables have been taken from statistical year book of Pakistan and federal bureau of statistics of Pakistan, time span from 1975 to 2013. To test empirically, Autoregressive and distributive lag model (ARDL) is applied to extract the relationship among variables (Gross domestic product, liquid liability, domestic credit and demand deposits). Results of the study confirm that these variables exhibit long run and short run behavior in the economy. Error correction model identify that the speed of adjustment is moderate to attain the equilibrium condition.

Keywords: Financial development, Domestic credit, Demand deposit, Liquid liability, ARDL