A Time Series Analysis of Financial Sector Development of Pakistan

Authors

  • Abdul Jalil Professor of Economics, Pakistan Institute of Development Economics, Islamabad, Pakistan
  • Nazia Bibi Assistant Professor of Economics, Pakistan Institute of Development Economics, Islamabad, Pakistan

Abstract

This article empirically investigates the contributing factors of
Pakistan's financial sector by using time series data from 1973 to
2019. Several studies discuss the role of financial development
in explaining economic activities, but the literature on the
determinants of financial sector development is an infant in
Pakistan. This study is an attempt in this way. Therefore, we
allow structural breaks endogenously to avoid spurious
relationships among the variables. Notably, we use unit root tests
which allow multiple breaks. This test confirms that some of the
data series have different levels of integration. We find that trade
openness, capital account liberalization, investment, GDP per
capita, and remittances are essential variables to make the
financial sector a well-functioning system. Inflation, tight
monetary policy, and public debt may hurt Pakistan's financial
sector.

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Published

2021-03-10