Impact of financial development and financial deepening on economic growth of Pakistan

Abstract

In the present Sitili\', we have examined the impact of Financial Development and Financial Dccpcnmg on the GDP growth of Pakistan, for which we have used the data from 19~() to 21) 1(" '-;lllce time series data was under examination, first of all Unit Root test were applic.' .uid based on their results we adopted Auto Regressive Distributed Lag (f\RDL) 1ll11,!.'!. II is concluded that financial development has a significant and positive imp.ut c n the economic growth or Pakistan, At the same time, financial deepening has ,:Is(\ ,ignificil11t positive impact on the economic growth of Pakistan in the long run Y\:1. '\'\.' can xcc that the impact or financial development is larger than the impact on rin;I!]('I;1. deepening in magnitude. While interest rate has come up with the result inconsixi '1\1 with theory, that an increase in interest rate shall have negative impact on the (il/Jl ';'()wth While Real effective exchange rate (REER) has also been shown to he C(llh';,(:llt with theory. that shows that a depreciation of the REER shall have positive illljl'! t on the CDP growth in the long run, While, in the short run, both financial dcvcl-ipmcnr and the financial deepening are appeared to be positively significant witl: (,: 'I' !!.J'()\\,lh rille, Meaning thereby, these two variables affect GDP growth r;lk in III '';l1mt run also, While interest rate has shown to be statistically insignificnnr. 01' II" other hand, RI:::ER has shown to be statistically significant and havi Ilg pos iIi \'L' 11' ,', 1,'1 l111(~DP groWl Ii ra tc ill I he short run as well. ECT( -J ) term shows the speed of <1<11'1 I~l 'Ill. if any shock Irorn the independent variables occur, then how much lime shall II I'T I(~ bring CiDP growlh rille on its long run path, the results shows that it take \CI~ hll' lime, In a i imc period OUl months the effect of shock fades away, The study sldl i'I' \';1Il important role in order to have an appropriate understanding of v II I an economy. the lin.mc inl scctor:s understanding in pivotal. This study shall be helpful for policy makvrx 10 understand the impact or Financial Development and Financial Deepening on ih,: lconornic growth 0[' Pakistan And to formulate the suitable policies that may further ~111111il(ltc the development or financial sector of Pakistan, thereby