Financial development and economic growth: The case of Pakistan

Abstract

In this study, the relationship between financial depth and economic growth is examined in an Autoregressive Distributed Lag (ARDL) framework for Pakistan utilising annual data for the period 1971-2004. The main empirical findings suggest that both in the long and the short run, financial depth exerted a positive effect on economic growth. The findings also suggest that in the long run, real interest rate had a significant and positive effect on economic growth. However, the short-run response of the real interest rate is very low, suggesting further acceleration of the liberalisation process.