Abstract
The financial sector plays a significant role in the economic development of a country. The aim of the study is to investigate the impact of financial intermediation and financial sector efficiency on economic growth in Pakistan. The study examines time series data from 1973 to 2014 to examine long-run cointegration by employing ARDL approach GDP per capita is used for economic growth while credit to the private sector is used as a proxy for financial intermediation. Efficiency is measured by interest rate spread which is equal to the difference between the lending interest rate and deposit interest rate. The results showed that financial intermediation has a positive significant impact on the economic growth of Pakistan in both long run and short run while financial sector efficiency has a positive impact on economic growth only in the long run. The study concluded that Pakistan should develop modern and stable financial institutions in order to enhance the ability of the financial sector to lend more which in turn creates investment opportunities that contribute to economic growth and development eventually.
Highlights
The primary duty of financial system of a country is to transfer excess money stocks from savers to the borrowers for making goods and services and investment rises by purchasing new tools or equipment and other amenities that causes growth of the economy and living standard of people gets better, So financial system is most important concept of the modern society (Vincent, 2013).The financial sector has two types of financing
The two types of financing are direct financing which refers to financial markets and indirect financing which refers to financial intermediaries, play an important role in boosting the economy
The results showed that there exist long run and short run effects of financial development which in turn creates an increase in economic growth in Nigeria
Summary
The primary duty of financial system of a country is to transfer excess money stocks from savers to the borrowers (investor/spenders) for making goods and services and investment rises by purchasing new tools or equipment and other amenities that causes growth of the economy and living standard of people gets better, So financial system is most important concept of the modern society (Vincent, 2013).The financial sector has two types of financing. The two types of financing are direct financing which refers to financial markets and indirect financing which refers to financial intermediaries, play an important role in boosting the economy. Financial intermediary reduces costs associated with saving and investment decisions while financial markets help to cause the full distribution of existing wealth that stimulate economic augmentation of a country (Saqib, 2013). The funds are given by the financial institutions often take a form either loans or mortgages. It is called a financial dis-intermediation if the transactions take place between parties directly, e. Banks, life insurance companies, investment banks, credit unions, mutual funds, brokers and stock exchanges are the best examples of financial intermediaries
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