Financial Development, Fiscal Policy and Economic Growth: The Role of Institutional Quality in Pakistan

Abstract

The study examines the influence of financial development, fiscal policy, and institutional quality on the growth of Pakistan economy. We investigate whether financial development and or fiscal policies promote the economic growth. We also analyse the effect of institutional quality on economic growth of Pakistan. We use time series data from 1985-2016 and use GDP to proxy economic growth. We use unit-root tests to check for stationary of our sample. We perform a logarithmic transformation on the series to reduce outlier effects and use Autoregressive Distributed Lag (ARDL) Model. The results show that financial development and revenue have a positive impact on growth. Our study results implicate that sound, strategic, and result-oriented policies should be formulated to transform our institutions and financial sectors into well organized, powerful, and trusted frameworks. These transformations will ensure efficient and productive utilization of savings.