Abstract
This study empirically analyzes the impact of the financial structure and misery index on economic growth in Pakistan. We adopted Autoregressive-Distributed Lag (ARDL) for a co-integration approach to the data analysis and used time series data from 1989 to 2017. We used GDP as the dependent variable; the Financial Development index (FDI) and misery index as the explanatory variables; and remittances, real interest, and trade openness as the control variables. The empirical results indicate the existence of a long-term relationship among the included variables in the model and the FD index, misery index, interest rate, trade openness, and remittances as the main affecting variables of GDP in the long run. The government needs appropriate reform in the financial sector and external sector in order to achieve a desirable level of economic growth in Pakistan. The misery index is constructed based on unemployment and inflation, which has a negative implication on the economic growth, and the government needs policies to reduce unemployment and inflation.
Highlights
Financial development has been extensively studied in the empirical literature
Financial development has been extensively analyzed in empirical literature from different aspects, and different methods have been adopted in the literature, yet some issues are
Financial development has been extensively analyzed in empirical literature from different aspects, and different methods have been adopted in the literature, yet some issues are unsolved, so this study has tried to cover those aspects to fill the research gap
Summary
Financial development has been extensively studied in the empirical literature. A well-determined financial system deals with risk diversification and effective wealth allocation. A higher level of financial development may result in higher savings and in high returns. Financial development can be measured in different ways, for example, by including several factors, such as the size, depth, access, and accuracy of the financial system. It can be measured by investigating the enacting actions of banks and different markets. There are many issues related to the economic growth and financial development associations that have been studied in the literature (Hye and Dolgopolova 2011); the measurement of financial development remains unresolved
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