Abstract
This paper finds that financial sector growth is key to boosting private investment in Pakistan. Banks, as financial intermediaries, enhance private investment by lowering risks and supporting decision-making through strong accounting standards. A broader financial system—measured by the ratio of commercial bank assets—positively impacts private investment. Financial deepening, or increasing liquid liabilities, also plays a critical role, as a developed banking system reduces transaction costs and improves fund access. Increasing private sector credit drives investment, so aligning the credit system with Pakistan's investment needs is essential. Strengthening financial intermediaries, enforcing contracts, and managing risks are necessary steps to support Pakistan’s financial sector growth and stimulate investment.
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