Financial Repression and Financial Depth: A Case Study of Pakistan

Abstract

The financial sector assumes a prosminent place in the economic growth. Financial depth, thus, becomes a tool that can be utilized to further the objective of economic growth. But Pakistan has been experiencing those policies that lead to financial repression. So, it becomes a natural question that how the financial repression has been impacting financial depth. The objective of the study is to investigate the impact of financial repression on financial depth. The study contributes by constructing financial repression index for Pakistan. By employing the Autoregressive Distributed Lagged Model (ARDL) to estimate the long run relationship between financial repression and financial depth the study finds positive relationship between financial repression and financial depth. This implies that government intervention like directed credit, enhances financial depth in case of Pakistan. Similarly, the bank density has a positive relationship with financial depth. The government intervention might improve financial sector, particularly, in the presence of lack of competitive market structure is the policy implication.